Yet Another Value Podcast - Boyar Research's Jonathan Boyar on how $MODG is growing an entire industry

Episode Date: October 17, 2023

Jonathan Boyar, President of Boyar Research, returns to the podcast for the fourth(!!) time to discuss his thesis on Topgolf Callaway Brands (NASDAQ: MODG) and how it is growing an entire industry. Subscribe to the Boyar Research Substack here: https://boyarresearch.substack.com/ You can Follow Boyar Research on Twitter/X here: https://twitter.com/BoyarValue $MODG write-up: https://boyarresearch.substack.com/p/a-company-thats-growing-its-entire Chapters: [0:00] Introduction + Episode sponsor: Alphasense [1:42] Topgolf Callaway Brands $MODG and why its interesting [3:57] Why $MODG is clearly a "Topgolf" story? And, what is Topgolf [12:05] Land grab for opening new "Topgolf" or competitive stores [15:00] What Jon thinks people are so worried about Topgolf [18:06] Topgolf pushback: financing new stores [22:17] Would it be better to separate Topgolf and Callaway? [24:42] Topgolf advertising revenue stream and what is the company referring to when they say they are "maximizing economics" of the business (PEI system) [29:30] KPIs the company tracks [33:50] $MODG valuation [39:04] "Toptracer" part of the business [41:22] Pressure on $MODG stock; what keeps Jon up at night about the idea and various upside scenarios [46:36] Final thoughts Today's episode is sponsored by: Alphasense This episode is brought to you by AlphaSense, the AI platform behind the world's biggest investment decisions. The right financial intelligence platform can make or break your quarter. AlphaSense is the #1 rated financial research solution by G2. With AI search technology and a library of premium content, you can stay ahead of key macroeconomic trends and accelerate your investment research efforts. AI capabilities, like Smart Synonyms and Sentiment Analysis, provide even deeper industry and company analysis. AlphaSense gives you the tools you need to provide better analysis for you and your clients. As a Yet Another Value Podcast listener, visit alpha-sense.com/fs today to beat FOMO and move faster than the market.

This episode is brought to you by AlphaSense, the AI platform behind the world's biggest investment decisions. The right financial intelligence platform can make or break your quarter. AlphaSense is the number one rated financial research solution by G2. With AI search technology and a library of premium content, you can stay ahead of key macroeconomic trends and accelerate your investment research efforts. AI capabilities like smart synonyms and sentiment analysis provide even deeper industry and company analysis. Alphasense gives you the tools you need, to provide better analysis for you and your clients. As yet another value podcast listener,

visit alpha-sense.com slash FS today to beat FOMO and move faster than the market. That's alpha-dash-sense.com slash FS. All right, hello, and welcome to the yet another value podcast. I'm your host, Andrew Walker. If you like this podcast, mean a lot, if you could rate, subscribe, review, wherever you're watching or listening to it.

Obviously, hoping for a five-star rating. With me today, I'm happy to have on for... John, is it the... third, fourth time? I can't remember. Third or fourth time? Third, it's been a number. I enjoy each one. You know, let's see. A lot of it is MSG focus and Dolan focus, but we did some others. Anyway, I'm all over the place. John is a man of many talents. He runs all of the different Boryar things.

They just launched the Boryar substack, which I'll include a link to in the show notes. And I believe we'll have a link to this specific idea we're going to talk about in the show notes as well. So you can check the show now for that. But before we get to the idea, Just a quick disclaimer to remind everyone, nothing on this podcast is investing advice. Please do your own research, consult a financial advisor, all of that type of stuff. I always say that, but particularly in these markets, like, oh, my God, nothing is financial advice because everything's going crazy. John, the stock we wanted to talk about today is it's now MODG is the ticker.

I believe they did MODG for its modern golf, but this is the company. People might know them as the old Callaway, they own top golf. It's a really interesting company, really interesting business, really interesting pitched. So I've said a lot. I'll just turn it over to you. Why is MODG so interesting right now? Yeah, it's, it's an extremely compelling story. And we've been following the name for quite some time. We've been following it. Actually, I think since we were talking before, since 2009, every year our research division, or we used to do a thematic piece. In 2009, we decided to talk about stocks, you know, consumer-related stocks that will do well, because at that point in time,

no one wanted to own consumer-related names. So it's a name we know quite well. It's a really well-run company. A guy by the name of Chip Ruer, actually was a guest on my podcast, runs it. He took it over in 2012 or 2013 and has done a fantastic job. And it's funny. The previous CEOs after Eli, the founder, died, were not golf enthusiasts. The last one was actually a tennis player, didn't even play golf.

So that was part of the problem. And, you know, Callaway or Topgolf was a huge pandemic beneficiary. Stock got up to about $37 and now is trading at 13 or so in change at a very low multiple. And it's really to us perplexing because if you look at another name in the space, a Cushnet, which we also have written favorably about their stock chart. are opposite each other. It's been just like this. And that leads us to believe, to believe that it's a top golf issue, not the equipment part of the business, because if you look at the number rounds played, et cetera, compared to pre-pandemic, this golf is only getting bigger and

bigger. And I think right now the best way to play that is in shares of modern golf or top off Calloway Browns. No, that's a great overview. The one thing I add there is the CEO being a golf enthusiast. A, it's like, it's a little too on the nose to have the CEO of a company who's a golf enthusiast whose name is, I think it's actually his nickname, but B. Chip, like just two on the nose. But, you know, you said he's done a great job.

And I do think the way they got top golf is they did an investment into them. I think they had 14% back in like 2007. But the way they really got top golf is right when the pandemic hits, top golf goes into distress. and Callaway does a stock-for-stock merger from memory. I think both sides get roughly 50% of the business, but they do a stock-for-stock merger, which in hindsight looks fantastic, right? You got a huge COVID beneficiary,

and you picked them up at distress levels right at the bottom. And I think part of that is your CEO is a golf enthusiast. He believes in the story. He believes in the name. He probably, like, I don't know if the tennis guy had still been in charge if he would have done that. Maybe he would have bought pickleball instead, so maybe it would have been a wash.

But I do want to, so let's say, I think you're right. I think the big question here is top golf, right? Calaway, modern golf this year, they're forecasting about 635 million in consolidated EBITDA of that 320 million roughly is top golf. So it's going to be 50% of the EBDA. You can look at their projections. It is going to be more going forward. This is the growth story. They're putting in 190 million, if I remember correctly, of CAPX this year into top golf. This is what they're focus on. And as you said, the competitors are kind of up, they're down. So it's clearly a top golf story. So let's just

start high level. What do you think the market is worried about with Top Golf? Well, it's about 13% of the shares are short, the sold short. And you also have, you know, Providence Equity Partners and some index funds are owning a decent amount. So you get exaggerated moves. And this, this might be prime for a meme stock rally, you know, given those factors. But the, I think the market is concerned that, you know, the average person spends $40. or so a year, not a year, each time to go to a top golf. So it's not cheap. So if you go into a, you know, a recession or a deeper recession with people have been incorrectly calling for the last year, year and a half, you know, that seems like something that would be the first

to go, although people do seem to value experiences. But just going back to what you were talking a little bit more about. So Chip Brewer, you know, he really cares. about the game of golf. He wants it to grow. Obviously, he wants his first and foremost, his fiduciary duty is to make sure Top Golf does well. But Top Golf is really helping grow the overall game of golf, which benefits the Callaway part of the business. So about 50, 60 percent of the people who visit Top Golf have never played golf before. And about 10 percent of new players have said that they are going to play on a course because or have played on a course because they went to a top golf.

So it's really growing the amount of golfers out there, which is fantastic. And if you go to, you know, and if they expect to add three to four million new off golf, off course golf participants for every 11 new top golf venues. So if you, every time you go to a top golf venue, it is. plastered with Callaway branding, Travis Matthew branding, which is a brand that they own, and it will just really help the company create kind of one of these virtuous circles. So it really, really helps. And now a quick break to remind you that this episode is brought to you exclusively by AlphaSense,

the AI platform behind the world's biggest investment decisions. AlphaSense gives you the tools you need to provide better analysis for you and your clients. As yet another value podcast listener, visit Alpha-Dash, sense.com slash FS today to beat FOMO and move faster than the market. That's alpha dash sense.com slash FS. So, you know, I co-sign everything you said, but let me back up. I just realized like you and me, I mean, we're, I'm rapidly approaching, you have kids. I'm rapidly approaching having kids. Like we are there, the target market for top golf. We obviously understand. Let's just back up a second. Internationalists, there's people who might not. What is top golf? When you go to a top golf, what is?

Yeah, that probably is how I should have started. No, I completely was going like everyone understood it. You know, I golfed when I was a kid. I've been to, I'm with you. We should have backed up to start. So top golf, the company is a couple different divisions. So you have top golf that they have an apparel division that owns things like Travis Matthews and Jack Wolfskin, which we can talk about Jeff Wolfskin

and potentially selling it later on, if you'd like. that's something I think an activist could get involved in doing. Then you have the traditional ball business, which is a great business because if you play golf the way I play golf, you go through a lot of balls. So it's a, it's a recurring revenue business. And then you have clubs. And it's amazing what they put into these clubs. I mean, they literally have NASA, former NASA engineers like designing these things.

They put a lot of money to the clubs. And then you have something called Top Golf. top golf which is primarily in the u.s there's a couple there's one in mexico there's a couple in britain but what it is is basically a bowling alley meets a nightclub meets a driving range you go there with your friends um you play these simulated games it's a it's a lot of fun and um you know 50 60% of the revenue is from you know food um as you know obviously a high margin uh they have a decent and size corporate business, and you go there, and the average person goes one and a half times a year, which they're trying to increase. And they also, the average person spends about

$40 or so when they go. And it's just a lot of fun. I think one of the things people are worried about to go back to one of your other questions, is, is this a fad? Is this sustainable? and I just, I have the own and operated venues like right here, and you go from in 17, 40 to, you know, 80 something today, and they're growing same venue sales, I think they've more than demonstrated this is not a fad. You know, that is one of the questions I had. So let's just talk about the fad real quick. You know, I do, I worried a little bit about sustainability. Now, I live in New York City. I know you don't live here anymore, but you work here.

We've met in the city before. I do think of something like Bullmore, right? Bullmore was really popular when I first moved to the city. And I think there's one, but Bullmore was basically like combo nightclub, good food, bowling lanes. And it was like filled every weekend. But then like kind of the novelty wore off. And yeah, it was probably filled on the weekends. But you know, it's a big space.

A Top Golf is a big space and we'll talk to the investment. They're filled Friday nights and Saturday nights. But you do kind of need the Sunday through Thursday crowd, at least to keep a little bit to keep that fixed income. And what I worry is kind of the Bullmore thing. Yes, for four years, you've got enough demand that you can kind of keep this thing. But after, so one of my questions for that was, hey, you mentioned 2017 to today, same store sales up. They've grown the business. But I do wonder, like, the original batch of top golf stores, do we have any idea of how they're comping today?

Like, have any of them close or are any of them starting to experience the stress? Because, you know, they do get a little older. They age. kind of wondering in that in terms of sustainability from what i read it's similar numbers to what is already out there and yeah i used to love to go to the bull more i know it was like an astro place area you know the village it was unbelievably expensive but also you have to remember they had that in new york city i can't imagine what the rent uh or if they owned it maybe it wasn't the highest and best use of that land um was to have something like that um so that might have been a one officer

the analogy I get. Let me ask, let's see, a few things. So I guess let's just talk returns, right? So they're going to build this top golf. And my first question, we'll dive into the numbers in a second. But I do wonder, a top golf, there is some brand there, right? But effectively what you've got is a big driving range with like three stories, a little bit of technology to track the balls and stuff.

And I kind of wondered, hey, is this a land grab? Is it similar to a regional park, right? where if I build the top golf outside of, I know there's one outside of Baden Rouge, just outside New Orleans. If I build that there, have I lacked up the six hour radius around that? Or is this going to be,

hey, I build one on one side of Baden Rouge, somebody else builds one on the other side and you kind of are competing for all that land brand. Does that make sense? Yeah. No, they have a drive shack as their main competitor. And these things are unbelievably expensive to build, somewhere between $20 and $50 million,

dollars depending on the size they have like different different locations that could be a little off on the number but I'm directionally correct but they haven't built one since 2019 and your top golf was going to open one up or they were going to open one up in Phoenix and top golf went in and then they just stopped it so top golf does have like you speak to people like oh I love top golf like the people who've been there love it they have positive experiences it's it's something that would be very hard to replicate. And I think it's something that scales. So they have a big, you know, first mover advantage.

And someone would have to spend a lot of money to go in and, you know, to replicate it. And I wouldn't discount the technology. I mean, the top tracer stuff is pretty impressive. I know this Pac-Man or whatever it's called that's now on the PGA tour, but the technology is pretty good. Just on the like kind of the fortress scene a la, you know, regional theme park, you build a six flags outside of Detroit. There's never going to be another regional theme park built around there. One of the things that jumped out to me was I think it was in they did a top golf focus call in June.

And they said, hey, you know, of our 11 stores that we opened in 2022, eight are performing above projections and three are performing, you know, probably a little below projections. Not that they're a disaster, but below. And someone asked, what's the difference? and the guy said, oh, well, the three are the second stores in a market, whereas the eight are in new markets. And they were saying, hey, we think when we opened a third store and a new market, a second store in a new market, it might cannibalize a little bit. And to me, that was, you know, it was a negative in terms of, yeah, you're probably not going to have two in New York City or two around Chicago or something. But it was actually a really big positive to me in terms of you build one, you've kind of franchised that, you've kind of put the mode around that market and locked it up. So I was actually kind of positive on that.

Let's talk. I'll come back to the real estate in a second. I just want to, you know, again, half the EBITDA is coming from top golf. The peers who have no EBITDA coming from top golf are straight up. The same store sales are continued to grow. Some people are a little worried about Q3, but they've reiterated their guidance. They put out 2025 targets and they've consistently said, hey, we think we're going to hit them. We're actually a buff trend if you look at 2022 and 2023 where we're coming out.

What do you think people are so worried about top golf? I think it's just new. I also think you have a growth investors are going into the stock. And they see some of this decelerating growth and they get spooked. And you also look, it's not a particularly well following this couple of cell site analysts. I mean, I know JPMorgan does. And the people at Jeffrey's actually do a really good job of covering them. but it's not a name.

This is not a magnificent seven name. It's a Russell 2000 type company. And these small cap names have done awful. And I mean, they've done much worse. I do hear you on that. It is kind of surprising though, right?

Because one of the things, it's easier to pitch something that the person is familiar with and likes. And, you know, if I imagine your average portfolio manager, you come and you pitch them, hey, top golf and Calloway Golf, like that seems like it'd be easier to get in,

then you're run-of-the-mill, get in the portfolio, get a meeting, get them to spend time on it, then you're run-of-the-mill, industrial or something like that, you know? No, no, I, to me, the move down has been furious. It's, you know, as I said, there's a big short position in there. Well, there is a big short position, but they also have some convertible notes, if I remember correctly. So I bet part of the short is, like, hedging of the convert notes. But the short position increased significantly over the last couple of months. And the note isn't, you know, the note is there.

So there's something out there, you know, the way I look at it is, you know, also the CEO, Brewer and the CFO keep buying stock personally. The board, I believe a lot of the board members have elected to take their compensation in stock, which is a huge vote of confidence. So I, you know, he's been a conservative guy. He's in his time there, he's made one big mistake and overall has done a really good job. And I think he's sitting on something that could grow quite well. It's just, it's a show me story.

Just to add what you said, I'm just kind of glancing at the numbers. You know, in June, a director buys $2 million of stock on the open market. I see one, two, three, four purchases. If we include December 5 purchases by the CEO, open market purchases of the stock, you know, combined, that's more than a million dollars. The CFOs bought stock on the open market twice in the past year. The global CPO has bought $100,000 with the stock. So there is a lot of insider buying.

And all the insider buying was done significantly higher than today's price. Let me turn to the other pushback. Okay. So Top Golf economics, right? The company loves to come out and say, our cash on cash returns at Top Golf are 50%. And guess what? It doesn't matter if your interest rates are 0, 5, or 10. If your cash rate, cash returns are 50%, you're going to do fine. But I do look at this. And I'm sorry to throw numbers out at people, but to make the numbers very simple, one of their 2020 reports, they said, the adjusted EBITDA for top golf is let's round it up to $6 million at a new location. And it costs $30 million to put to open up a top golf, right? So you just do six divided by 36. That's a 20% return. not 50%. And the way they get to 50% is with lots of financing and lots of construction financing stuff. And that's fine, right? Like retailers never include, when you hear a retailer say, hey, our new store is 30% payback.

They're not talking about going and building a whole mall and putting their new store. It's just the cash return in there, right? But at the same time, I look at it as a $30 million. It's a big chunk of change. And they're kind of only, I guess with interest rates going up, my question is with interest rates going up, when I look at their cash on cash returns, it looks like they're assuming. very low rents, very low vendor financing costs for that 22 and a half million that they're financing. And I kind of wonder, hey, was this huge, this huge $30 million spend? Was this kind of a function of you could make this work when interest rates were zero? But when interest rates are like 8% to do a construction loan, the returns drop really quickly? I mean, the returns will drop. Certainly. And listen, that's why you do your own homework and you don't rely on the really nice

slide decks that top golf and all other companies provide. But the bottom line is they are profitable. They are growing. And if you take everything, he put a giant haircut there, it's still quite good. And it's interesting. We're debating back and forth internally as they talk about, you know, they've been hinting that, oh, maybe they're going to start just doing the whole thing on their own and not have these REAP partners that they have. I don't know. if they're posturing and trying to get better terms or or if the terms are just too onerous or they just want to control their own destiny, which might also be the case. I mean, you look at these, you know, the Home Depot's of the world, all these great

companies, Starbucks, they own their or a lot of them, they own stores. So maybe that's what they want to do. I'm not sure. But the bottom line is whether it's a 30%, 40% return, it's still a very, very, very good return and something that they should be plowing their cash back into and reinvesting because I think they have a long runway and then they're going to have the high margin international and this is something that I think will do well internationally it's always hard with culture and things like that but that will be a high margin revenue stream they think they can get to

250 venues outside of the United States. What you're talking about is domestically, they're owning and operating all the top golfs. Obviously, they don't own all the real estate. We've talked about them. But internationally, it's high margin because they're planning to franchise the whole thing. And I think they've kind of said, hey, we can get, I don't have the exact numbers, but we think we can support 250 stores domestically. That's the exact number. And we think we could do the same internationally. So you think about 250 units, call it 5 million a unit. They get a, I don't know, 5% royalty fee. like you could see how that could be really high margin, that could be quite profitable,

lots of cash flow, and none of that's in any of the numbers currently. It's in any of the numbers currently, and it has what we were talking about before, the added benefit, not only are they going to, you know, it'll be like, you know, opening a franchising of Burger King or, or McDonald's, they get that a high stream. But what they also get is exposure to Calloway clubs, Calloway Balls, you know, Travis Matthew, do like it's free advertising for a lot of stuff that will also be quite valuable to them. So it's a great opportunity that no one is giving them credit for. Let's dig into that.

So obviously, modern golf, you know, Calloway on one side, top golf on the other. You go to a top golf, you get the Callaway advertisements and all that sort of stuff. I think they would argue that's the synergy. You know, my question is, is it, does it need to be together? You know, could obviously these could be separated, but would it be better? to separate these two, and then you could have the Callaway kind of direct Cushnet competitor, people could value that, and then you could have the top golf, you know, completely separate and top golf every four years, they could go and say, Calaway versus Titleist, who wants to be

our sponsor? Who wants to be the official clubs? Who wants to be the official balls? You know, like, would it make sense? Are there really synergies between having these two together, I guess, is what I'm asking. I think there's certainly synergies because I think they're helping grow the game of golf and then they had that first look into, you know, the consumers or, you know, had Callaway in their minds who went to any of these top golf locations. What they can do is sell Jack Wolfskin and Travis Matthews for a fair amount of money. I mean, if you do it like one-time sales, which is really low, you get six, seven hundred million dollars and they'll get a lot more than that for these for these businesses. And then you pay down the debt. You're able to

spend more money in these high return top top businesses, or you buy back stock. I would much prefer that. And that's why I think, I mean, this is a stock where I don't think Chip deserves an activist because I think he's done a good job. But I think to preempt an activist or what an activist playbook would be, would be to come in and sell the apparel business and use it to return capital to shareholders or reinvest in the business. Yeah. Look, I'm with you, especially the apparel business, it just, it doesn't really fit here. I understand why, you know, you can see the synergies between Callaway clubs are what people get introduced to the game of golf when they go to Top Golf for the first time.

It's really hard for me to see the synergies of, hey, Jack Matthews is the golf, golf shirt you get introduced to at the game golf, you know, so sell it. And then if you really believe the 30, 40, 50 percent returns on Top Golf, go build, go build some more, go build them quicker with the proceeds or buyback stock, whatever you need to do. But I'm with you. Let's, hmm, whatever else should we go. Oh, two other things.

Just top golf, you know, again, I'm very tickled by it. I've been to the top golf a few times. I just want to talk about two things that maybe they don't impact the stock, but I was interesting. Number one, they formed a advertising partnership with Honda slash Accura recently. And I thought that was really interesting. They came out and said, hey, you know, Honda and Accura are big sponsors of the PJA tour. They're going to be sponsors of ours. I don't know what exactly they're going to do with top golf.

But I did wonder, like, a top golf has tens of thousands of people who are going to come through it every year. It's this huge thing. People are putting. I do wonder, you and I, you've been on talking about MSG Spear before in MSG Garden. Obviously, you're not going to reran Top Golf into something else. But I wonder if you start having, like, the official energy drink of Top Golf. Top Golf, Las Vegas brought to you by insert sponsor here. you're like, what's the type of advertising component?

It's really interesting because it's just such a big, a big space. You generally do get lots of advertisements attached to that. Yeah, the answer is I think it's a co-option. I don't know. They have like a digital business as well in the sense of like they have these games that people can play like remotely and all that kind. So maybe you put the advertising there. But yeah, you have people who are going there having a good time spending an hour

and a half, two hours with positive associations to the place. place, why not? And the places are very good looking and nice. Like, why not have other branding there? I was almost wondering, like, so if you're familiar with the top golf, most of them have huge nets around, you know, it's a big driving range with huge nets so that balls aren't going into the freeway or hitting random pedestrians. You could imagine, I haven't been to one in a few years, but you could imagine hanging advertisements from those huge nets, right? Both on the inside, so people or staring at them while they play, and on the outside. So when people are driving by, it's basically a billboard.

Like, let me transition that hypothetical into something. They have talked about, this is a direct quote, we are still in the relatively early innings of maximizing the economics of top golf here. What else do you think they're talking about when they say they're maximizing the economics? Well, they have this like pie system that they call. Yeah, B.E.I, yep. Yeah. So the biggest complaint that people have when they go to top golf is the weights too long.

And obviously that's a problem that, you can solve with money. And that's what they're doing. And they're, you know, you pay $10 or $15 so you reserve your spot. And I think in some cases, they even have a minimum time. I'm not 100% sure on that. And it's just making it much more efficient where you don't have people sitting there for an hour doing nothing.

It's just a much more efficient way of doing it. And that's driving significant, you know, improvement in the business. So I think that's what they're largely. referring to. Plus, as they build these things, every year they build 11, or they're trying to, they're learning more and more on how to build these well. And I think that just gets better with time. Just going back to the pie system, PI, I think it's like player enhancement. I can't remember. But they've said they're not going to do airline pricing, right? But you really could imagine airline pricing here, right? When does everybody want to go have the big top golf celebration?

It's Friday night, it's Saturday night, it's bachelor parties, Saturday during the day, Sunday during the day. That's, you could imagine, hey, you want a Friday night reservation, we've got one bay left. You know, the normal bay goes for X dollars per hour. Friday night at seven, it's seven X per hour, like, and just put it up for bids for who wants it. Like, you could imagine a lot of revenue optimization. Now you have to weigh that against, hey, do you want to be the place that's charging $5,000 for a bay? is that hitting your brand in some way or shape, form? I'd argue at $5,000 I'd take it.

But, you know, there's something there. And they're certainly in the very early innings of tapping that. And to our point earlier on kind of usage during the week, they've got half off Tuesdays. I went and looked at the New Jersey one. They've got, hey, come on Wednesday and we'll give you like $20 of wings or something. Like there's other things they can do not just on incremental pricing at peak times, but probably decreasing pricing to get leverage on, you know, top golf is there, get leverage and optimization in the kind of dollar hours.

Yeah, no, exactly. And they also were, I think in some of them you can have golf lessons and like other things that you just do to get people in there. It just makes a lot of sense. I think this is one of the names, the type of name that if you're patient and you can stand this short term pain, which it's been painful, you can make a fair amount of money. We're going to talk some of the parts in one second, but I do just want to ask one last question here. Again, this is very nerdy, but one of the things they mentioned is the CEO of Top Golf, or I guess he's the president of Top Golf, came and said, hey, our KPI, the performance indicator we track the most is number of balls hit.

And they said, hey, we want to have, what is it, five billion balls hit by 2025 or something. And I thought that was really interesting, because I can see what they're saying, right? More balls hit means more people in there. more balls. But at the same time, you know, I'm sure both you and I are the same. We've texted about some of the John Malone stuff before. We really track incentives and come. And I just wonder, like, if balls hit is your KPI, you might not want balls hit, right? Like, I could imagine you and I going. And if we hit 100 balls in an hour, I could imagine how that could be a lot less profitable for them than if you and I hit 50 balls in an hour. But, you know, we bought two beers.

We had a burger. We were hanging out, all that type of stuff. Like, is balls hit really the KPI, do you worry that that's like sub-opt-school management? Yeah, no, that's a really interesting question. Yeah, is it the best one? No, but you also, one of the things they're trying to do is have these double bays. So if you can get a whole bunch of people there who, if you can go with three or four, you know, six or seven of your friends take up two bays and you're eating and drinking and you're going up every three or four minutes to hit that, I guess, would work

out well. But yeah, no, they want you, you know, they want you to sit there and eat and order booze and have wings, et cetera. So they don't want you sitting there just hitting the ball. But like hitting the ball is the fun part is what gets people there. You mentioned the double-based author. One of the things I love about top golf from a just thinking about a perspective is double bays. I mean, what they're saying is bachelor parties, bachelor parties, birthday parties. Like that's a double bay, right? You and 10 friends go and rent. but double bays and corporate events if you just think about top golf like there there just aren't a lot of brand safe things that you as a corporate can go and say hey we're going to take a team of 15 people to do literally everyone can have a good time like even if you're not a golfer it's you can get up there they've got chipping games that you can play that you have no skills or you can just sit in the back and drink and there's like lots of other fun stuff to do and it just strikes me like these bays that are this it's so brand safe and it's it's so brand safe and it's it's got such brand like it just does feel like there's a niche for it and you build it and as we

talked about earlier nobody else is building anything similar anywhere around you it just it feels like there's a really nice niche in there for it and you know what are people going to want to do 15 years from now probably play golf go outside have corporate events that are brand safe like it's tough to see the demand for that going away yeah I agree I mean the negative or what could go wrong is top golf is a fad and, you know, work from home, you know, totally reverses and people are playing a lot less golf, both of which I do not think is going to, you know, occur. You know, we could talk like golf. I do think they've got a chart in one of their investor size. I don't have it. But, you know, it does show until like 16 or 17 golf, maybe even until

the pandemic, golf was kind of, on the actual golf courses, it was experiencing a decline. And I do remember old Wall Street Journal articles about the aging of golf. Part of that might have been Tiger was kind of aging out. And Tiger brought so many people. Like one superstar in a sport can bring a lot of people in. Tiger was kind of aging out. And then you have COVID and golf is a huge beneficiary, right? Like it's one of the few things you can do. And I could see people worrying like, hey, you know, does golf revert back to that pre-COVID? But the other nice thing about that chart is it shows like kind of the top golf on top of it and you've got so many people I don't think you need to love golf to be part of the top golf thing I don't know I definitely hear

you on that but it's strange yeah and you know rounds play this year was higher than last year I mean there was a slight bump between 20 the there was a slight decrease from the year before but it's going in the right direction I don't think that this is this is a fad and Yeah, I think they're, as I said, they're building the funnel. Let me add. So let's talk some of the parts real quick, right? As you and I are talking, the stock is at $12 or $13 or something. They've guided to, as we talked about $635 million in EBITA this year, with about half of that coming from Top Golf. Now, we don't have to get into how they're, you know, there is a little bit of funky accounting from the financing leases and the top golf and everything. But just high level, you know, you've got this growth, kind of capital intensive business. and top golf that's coming up, and then you've got the brands, and then you've got the golf clubs. And, you know, those, both the brands and the golf clubs probably deserve a little bit

different multiple. They take different, they take different amounts to cap X, but those are pretty much like lower growth, especially the golf clubs, like long history of profitability. So how do you model and value this? For the club business? But just the sum of the parts of the whole thing. Oh, yeah, I mean, you can, you know, the apparel, we do a tent time, you know, we go out to 2025. We did 10 times for the apparel, 12 times for the golf equipment, and 15 times

for top golf. And you can quibble with his 15 too aggressive, but for a fast-growing entertainment-like concept, maybe not. So even if you put it to 12 or 13 times, you still have a much higher stock than you do now. I mean, this is something where you can, you know, it could be, not saying it will be, it could be a triple from here. Can you walk me through, you listed three multiples. And those are all EBITL multiples if I remember the report. And I'm just doing the math in my head correctly. But let's just walk through the closest comps, right?

For the golf clubs, which you valued at 12x EBITDA, like where is that multiple coming from? That's a looking at there's been a lot of transactions in the golf equipment space. And we, I mean, we always use when we can precedent industry transactions. I don't have which ones off top of my head. But there's been a few over the last couple of years. So those are fresh comps and, you know, not much higher than probably what a Cushnet is trading for right now. If I remember correctly from your report, and I do remember Taylor Made was one of the big comps you did, which transacted in 2021 for about 15 times Eibada.

So you're at 12, like 15 times EBITA's kind of the takeout multiple. That makes sense. Was Cushat who bought Taylor Made? I can't remember. No. don't remember but I can't but there you know I think 12 acts is probably fine because golf equipment like Callaway as you said you're not going to

if you think about a golf club like there is NASA engineering going into that these are deep long-seated brands like these are very brandy businesses now if you were forecasting golf to the clock go into terminal decline or something like that we could have a discussion but you know you and I are not going to go start up a golf business smart. It's very hard. They're very moaty. They've got brands. They've got engineers. There's a lot of returns to scale there. Like that 12 times EBITA pretty stable business, maybe you could say 10 if you want. But, you know, I don't think this is like a four times EBITDA business. Like this is a solid business. Let's go to a pair. And also remember,

you also have the balls, golf balls in there. You're going back to someone like me who's got golf balls. Though, you know, balls are probably balls you do get like, I do remember the title us pro b ones when i was growing up like everybody when i was golfing was oh titleless pro b ones like you do have brand and you do have margin there but balls not quite the same amount of engineering you know there are no i meant the replacement part of it so you get a uh oh i just meant that's a margin lower moody business like you can always substitute there but the the clubs and you know clubs are tough you sponsorships as well sponsorships and you know the club is it's an investment right if you're a golfer the clubs are your your thing every it's just very tough to go not

knockoff clubs. Apparel, which is the smallest part of the business, you value 10 times. We don't need to talk about that too much, but I don't think 10 times EBDA for an apparel business is crazy. No, and as I said, I think they should get rid of it, or at least part of it. And it's, I think the stock would go significantly higher. And then the last one is you threw 15 times out for, you threw 15 times EBITA out for top golf. And obviously, you're using a 2025 multiple top golf is growing quickly. We mentioned they're launching 11 stores last year, 11 stores this year. And I mean, this is off of a base that's about, that's approaching 100. So this is fast growing, a lot of catbacks going

into this. We're ignoring the growth and everything. You know, they've got the returns. I don't think EBITDA as long as the business is in a fad is crazy, but where's the 15 times coming from? Just looking at other entertainment and fast growing entertainment concepts. I don't have which ones we did, we did the report in February off top my head. But the, you know, some people in the street are modeling it at 13 times. We have 15. Maybe that's a bit aggressive or rich. As I said, even if you do it at 14 or 13, you're going to make a lot of money here. So it's, I just think the international runway is huge. The top tracer part of the business, which we, we didn't discuss. Maybe I'll briefly talk about it. So the top tracer, when you,

go to a range or top golf it tracks the flight of your balls it's it's pretty it's pretty interesting and what they're doing and they're in early innings of it is going to driving ranges and country clubs and saying you know this would be good for your customers and they can show that you get a big uplift and revenue and for two thousand dollars a year in per bay we will allow you to let your customers see how far they hit the ball and all sorts of other statistics. I have no idea what people do with, but they like. It's been very successful. They have a couple of competitors, but they are the leader in it.

So that's a fast-growing, high-margin, recurring revenue type of business. So, you know, those are all the things that got us to give it a premium multiple. As I said, you can quibble with, it's only a small part of the top. top story. If I, on TopTracer, if I remember correctly, they go and it's $2,000 a year for a year per bed. And I think what they show is, hey, you spend $2,000 a year on this, but your customers because they enjoy it, right?

It's something that gives them more data, more info. They're going to hit, I can't remember the exact number, but, you know, it causes them to hit more balls. So yes, it's a $2,000 a year investment, but your revenue goes up, you know, $4,000 a year when you buy this. Plus, people are on the range longer, so you probably get knock on effects of. buying a couple more drinks or stuff like that. So that's the pitch, if I remember correctly.

Yeah. And you probably, I mean, I don't know if they're there yet, but they're getting all this data on people's swings and things like that. They probably can use it for help sell more clubs and, you know, say, oh, you're swinging this way, so you should, you know, buy this club, which would be helpful for pro shops, et cetera. And now a quick break to remind you that this episode is brought to you exclusively by AlphaSense, the AI platform behind the world's biggest investment decisions.

Alpha Sense gives you the tools you need to provide better analysis for you and your clients. As yet another value podcast listener, visit alpha dash sense.com slash FS today to beat FOMO and move faster than the market. That's alpha dash sense.com slash FS. Let me, so look, I think we've hit the high levels. Like most of the time we spent was talking about top golf, which is probably right because, again, it's half the earnings here. It is the reason it peers are up. These guys are down. You have to imagine it's because peers don't have a top golf and the market's worried about something with top golf.

Listen to an earnings call every time. Like every question is, what are the up-to-date top golf trends? Like, people are obviously worried about that. We cover the insider buying. We cover the share buybacks briefly. We covered golfs not going away, all that sort of stuff. So I just want to ask you, like, we've covered a lot. The stock has, it's just been hammered this year, right?

It's been hammered. A lot of small cap stuff is been hammered. But is there anything else? I think we hit the main worry, top golf. But is there anything else here that like kind of keep. you up at night with this that you think the market might be worried about, that either you're worried about, you're thinking about, or you think the market's too concerned with? They, one of the reasons the stock went down earlier this year, and like, I don't even

think that management should have said it, that, you know, they were saying that demand for the events business was going down and they were blaming the banking crisis, which I don't think someone canceled a party because of the, of the banking crisis. But all the- Well, Silicon Valley Bank and- Maybe they were a big, yeah, but I don't think they were a big customer. All the problems that they seem to be having are shorter term in nature. And, you know, you know us pretty well.

We're not quarter to quarter type of investors. Obviously, it would be better to, you know, do these things at the lowest price possible. But I think the story's there and people who are patient should continue and use this opportunity as, you know, as a gift to you're able to buy, you're able to buy double the amount of shares than you were, you know, a year ago or so. I mean, it's a, it's a real, it's a really compelling story that, you know, obviously there's risk with everything. There's leverage, but there are ways to get that leverage down. And yet you have good management who is highly incentivized to make this work.

Yeah. The thing I really like here is like, top cop is a very unique concept. Just off the top of my head, I can't really think of a concept like it on the public markets. I'm sure there is, but I can't think of any off the top of my head that are kind of akin to this, you know, $30 million huge investment upfront to create entertainment venues. And I just like, hey, you're buying this at, I don't remember what they merged in late 2020. So the valuation metrics were all over the place.

But the business is much more proved out. It's much bigger now. And, you know, is top golf, if top golf is worth 15 times EBDA, that would explain, that would be worth all today's share price. And then you would get the other businesses thrown in for free. And, you know, I just look at that. I say, that's a pretty attractive combo. And I don't know, it seems like the market's forecasting a lot of top golf fears that I,

I certainly don't have or I think are very remote and tail risky. Yeah. there's risk in everything that you do, except if you're going to, you know, short duration treasuries. I thought you were going to say just treasuries in general. I'm going to be like Silicon Valley Bank and First Republic pulled you wrong there. That's why I said short duration. But if you're going to take a, you know, this is one where we have a high conviction on. And that's why I wanted to tell the story out there because it's just unbelievable. And I think this is one where, as I said, I think Chip Rour has done a great job, but maybe he should think about selling the apparel business.

It's kind of what I was dancing around here. The activist playbook, as you said, it writes itself. I mean, you mentioned selling the apparel business, which would probably be worth $500 to $500 million to $1 billion depending on kind of what you think with the carbop cost and everything, which that would be a lot, right? This is a $2.5 billion market company. That would be a lot. You could pay down a lot of debt. you could fund a lot of top golfs with that. But to me, the activist playbook would be a step further.

I understand they think there's synergies between Callaway and Top Golf, but I think the activist playbook is break every single part apart, right? Like Taylor Made and Cushnet both have a history of being owned by private equity, sell Calloway to private equity who wants to invest in this good revenue stream, very stable, maybe a little economically sensitive, but you kind of know what you're getting. Sell it to them, let them slap a lot of leverage on it, sell the brands to either strategic or private equity and then put top golf as a cure play

top golf subsidiary on the public markets and let let growth investors like kind of go after that and that's the activist playbook to me and I think you see a stock a lot higher if somebody comes in and drives that you get that higher quicker or know if top golf plays out you'll get the higher over a longer time frame from top golf playing out as kind of as is it's I mean that That could work, too. I think, I do think there are synergies in between the two. I don't see that with the apparel at all. But your way works too.

I think either way, we should make money. Thank you. Cool. Anything else you want to chat about here? No, that's, I think we've, you, when we were talking before, you said, you know, before, you know, a couple days ago when we were speaking of, you know, 55 minutes flies by and you're certainly right i i looked at the clock now and i can't believe how long we were speaking so thank you for for being on it was it was a lot of fun and hopefully

people find this to be useful all right last question before i let you go are you excited for the nixon rangers this year um listen after the excitement of last year it was so to me it was so cool having, you know, the Knicks just, you know, make the playoffs. And it was just fun. Make the play. This is three years in the row of the playoffs, John. Yeah, but like they went far in. It was great.

And I'm, you know, I'm trying to convince my wife to go out to the Vegas for the sphere, see you two. And from what I understand, the rumors are that the next, we're talking with the MSG sphere, the next act that they're going to sign or they're going to announce as fish, which makes a ton of sense and that's been a fun one to watch. The Spear, I mean, you and I,

did we do an episode on that? I think I did it with Chris McIntyre, but we talked MSG Entertainment and we mentioned the Speer then. Yeah, we talked all things Dolan. Well, you know, that will be its own podcast for another day. That is one of the most interesting one out there because Top Golf, you talk N of 1.

Like, Spear is legit N of 1. There is nothing else. The closest thing to Sphere on the public markets is MSG Entertainment, which owns the Garden, like that's the only other publicly traded arena, but sphere to garden is, you know, it's not apples to oranges, it's apples to

basketballs or something, you know, like, it's completely different. I mean, you know, when you look at those pictures in Vegas and the advertising opportunities outside of that stadium is just enormous. I mean, I wrote a lengthy opening letter to James Joel

in 2019 saying, stop construction of a sphere. I wish it was never built. it was, you know, $2.2 billion of shareholder money that should never have been spent. But now that it's there, let's at least embrace it. I think it could. Maybe he's right. Maybe this will do well. And I just hope that if it does well, that he does this in a capital white way going forward instead of building these things. Talking about international franchising, the international franchise of the sphere. No, look, I, all right, we'll wrap it up in two minutes. My two worries with the sphere are, A, as you said, It seems pretty clear they want to do more.

And I've never heard of a franchised arena business. I understand there's some tech behind this, but a franchise arena business is very strange. And the economics behind it, I've never heard of it. It would be new. And I worry he's going to go build one. And then the second thing is, okay, the sphere, I still don't think the $2.2 billion is going to be a good return. But you know what? That doesn't matter from today's standpoint.

What I worry about with the sphere right now is the reviews are. are unbelievable as is, right? But I worry about that thing where your first reviews, you blow it out, right? You two, all costs, no expenses spared. It's so novel having this eyeball in. They're going to have F1 in a few months and it's going to be great. I worry a year from now, like, who's after you two and fish, right?

Like, how do you keep filling the stadium up? And I worry. Taylor would be, I mean, she'd be unbelievable. But there aren't a ton of bands who could fill like, this is 20,000 seat stadium who could, fill it 20 times a week that that the what is it the live experience show that they show it seems awesome but how many times can you fill that up like i just worry a year from now people like oh they're having a lot of trouble filling that thing and you know the eyeball is really novel when

you throw it for the first time but you know a year from now all the residents like this giant blue eyeball keeps shining i hate that thing and you know i do think there's an advertising case there but I just worry about the sustainability of the economics there. What I had said in that letter was you have the best business in the world or one of the best business in the world in owning Madison Square Garden, having the lease in the Beacon Theater, stick with that and, you know, renovate that every 15 or 20 years. The spear is speculative, you know, position yourself accordingly. At least you got it out of the corporate.

Anyway, John, this was great. Looking forward to having you back. I think it's going to be the fifth time the next time you come on. You know, fifth time. Do I get a hat? You should have gotten a hat for the second time. I think I got the hats recently. We'll get you a hat.

But the fifth time, there is, some of the guests are starting to hit it. There is a special guest for the fifth time. So we'll look forward to that as well. Sounds good. Thank you so much for having me and good luck with everything. And of course, linked to all of John's subtax and everything. We'll be in the show notes for people. I appreciate the well wishes, John.

We'll talk soon. Thank you. A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.