How investors are betting on golf’s decline
More and more market participants have been banking on the decline in the popularity of golf, according to new research, with stocks that have exposure to the sport seeing an increase in short interest in recent weeks.
Rather than playing the long game, Markit, a data analysis firm based in the U.K., says that these "short sellers" have been keen to play this near-term trend. Short-selling is an investment tactic where a speculator borrows a financial instrument, such as a stock, and sells it in the hope of buying it back later at a lower price, thereby making a profit. Markit measures this short interest by calculating the amount of shares that are out on loan.
"With an aging customer base and slimming margins, companies with large exposure to the golfing sector have seen their stocks come under pressure in recent weeks," said Simon Colvin, a research analyst at Markit.
Most notably, German sportswear conglomerate Adidas sounded the alarm bell in a recent earnings release.
The firm said that revenues for its golf segment declined 18 percent in the first half of 2014, compared to the same period last year. It cited the "continued weakness in the golf market, where retail inventories remain high and participation continues to decline." Markit says that short interest in Adidas surged by over a third in the wake of that news, with 4.2 percent of the firm's shares now out on loan. Its stock has tanked 16 percent since issuing the news.
German rival Puma has also highlighted a decline in golf equipment sales due to the weaker "golfing environment" as short sellers move in on its stock.
Sixteen percent of the company's freely traded shares are out on loan, twice the number seen a year ago, according to Markit. U.S.-listed Nike, meanwhile, has highlighted that sales of golfing equipment have stagnated since last year, whereas all of its other categories have seen modest sales growth. Nike shares have survived the drubbing with a gain of 1 percent so far this year, but Puma's stock has slipped 19 percent since January.
Snobbery and elitism?
A series of metrics has helped to paint a dismal future for the sport. Colvin notes that the Sports & Fitness Industry Association estimates that participation rates for 18-34 year-olds has fallen over the last five years.
He also highlights statistics from industry monitor Golf Datatech which state that the number of golf rounds played in the U.S. fell by 5 percent last year. One bright spot comes from England Golf, with the amateur golf governing body, which reports that a "massive" 110,000 people in England got into golf in the year ending March 2014. That's more than double the figure for the previous 12 months, it said.
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Golf is often accused of snobbery and elitism, with the game requiring time and financial investment compared to more fast-paced alternatives. Many pundits have tried to offer a reason for the drop in interest. As well as the costs involved, the modern distractions of social networking as well as the recent poor form of Tiger Woods may be to blame.
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California-based Callaway is another company that has been affected by this downturn. It draws the entirety of its revenue from golf and nearly twice as many of its shares are now out on loan compared to the start of the year, according to Markit. The firm's shares are down by 9 percent year-to-date.
Dick's response
Meanwhile, Dick's Sporting Goods is one company that has offered a swift response in the face of this trend lower for the sport. In July it decided to let go of more than 500 professionals that worked at the company's stores. It also detailed a restructuring plan for its golfing unit in August as it dumped its old inventory and highlighted negative sentiment towards the sector.
"We have eliminated specific staff in our golf area within our Dick's Sporting Goods stores. These changes are necessitated by the current and expected trends in golf. We will invest these cost savings into other aspects of our store operations and into the growth areas of our business," CEO and Chairman Edward Stack, said in the earnings release on August 19.
Short sellers have since closed nearly all their positions with the demand to borrow its shares falling to a three year low, according to Markit.