Yahoo Finance Here's why Adidas is finally selling off its golf business
Would anyone want to buy TaylorMade?
Last August, Adidas Group (ADDYY) announced it was considering the possibility of selling off TaylorMade, the golf equipment division it first acquired in 1997 when it bought ski-maker Salomon. TaylorMade sales were falling steadily, including a whopping 26% drop in one quarter. But CEO Herbert Hainer, at the time, said the company would seek to turn TaylorMade around. "The outcome will and has to be a more nimble and profitable golf company,” he said in a statement. In the third quarter of 2015, TaylorMade sales rose just slightly. The company went silent regarding a potential sale, and it was unclear if it would sell after all.
This week, Adidas finally waved the white flag. It will seek a buyer for TaylorMade as well as for Adams, a club-maker, and Ashworth, an apparel line. It will hold on to Adidas Golf, its own division of golf apparel and shoes, and thus presumably retain active endorsement deals with Adidas-sponsored golfers like Jason Day, Sergio Garcia, and Dustin Johnson. Adidas Golf, the company has said, makes up nearly 40% of its overall golf division.
In the company's first-quarter earnings report, TaylorMade-Adidas was the one drag on an otherwise great narrative. The TaylorMade brand was up, but offset by declines at Adams and Ashworth, causing sales for the golf unit to drop 1% again. TaylorMade sales have fallen in seven of the past eight quarters. There is no way to sugarcoat it: golf equipment is a very bad business right now.
"TaylorMade is a very viable business," Hainer insisted in the earnings statement. "However, we decided that now is the time to focus even more on our core strength in the athletic footwear and apparel market... I am convinced that TaylorMade offers attractive growth opportunities in the future. At the same time, the planned divestiture will allow us to reduce complexity and focus our efforts on those areas of our business that offer the highest return."
Will any potential buyer agree that TaylorMade "offers attractive growth opportunities?" It's unlikely Nike (NKE), which already has Nike Golf, would be interested. And Under Armour (UA) has seen great success with golf apparel and the rollout of its first full golf shoe line, but has said that for now it has no interest in producing golf equipment. Callaway Golf (ELY) is an obvious possibility, but analysts say TaylorMade is likely too expensive for it. More likely than an existing golf or apparel player, multiple analysts tell Yahoo Finance, would be a private equity buyer with a love for golf and a zeal for a turnaround challenge.
Mark King, CEO of Adidas USA, offered his take in an exclusive interview with Yahoo Finance on Wednesday. King cautioned that he is not responsible for TaylorMade – which is true – but he's nonetheless uniquely positioned to comment, because he was TaylorMade's CEO before he left to run Adidas in the U.S. in 2014.
"I think the decision was made to sell it," King says, "because the company has realized that we should be focusing on the biggest growth opportunities. And the biggest growth opportunities are in running, training, basketball. And we have a lot of runway in those. As opposed to being in something that is harder to focus on."
Harder to focus on? In other words, golf equipment is a bad business these days (despite Hainer's insistence to the contrary)? "It is," King says. "And that was the realization." As the former TaylorMade chief, King has had a hand in the many efforts to attract new fans to the sport of golf and change the downward trend. Two years ago, along with the National Golf Foundation, King helped launch Hack Golf, an open invitation to innovations that might grow the game. The most notable of those was a larger, 15-inch hole (about the size of a pizza box) that some hoped would lure young kids to try an easier version of the game. It was met with ridicule in some parts of the sport.
The drop in equipment sales, the drops in TV viewership of some of golf's four Majors, and the closing of courses are all connected. If participation can rise, and fan interest can rise, club sales will rise, too.
So what does the way forward look like? "I just think any category runs its play until the play doesn’t work anymore," King says. "And then it’s forced to ask, Do we need to do things differently? Tennis did that. Bowling did that. Skiing did that. And I think that's where the game of golf is today. It needs to change some of the entry points to the game to attract new consumers. And I think golf will find a way to do that, whether that takes five years or 10 years."
Adidas can't wait that long to see if the industry will improve. It will remain on golfers' shirts and shoes, but it's looking to get out your bag of clubs, pronto.
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Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology.
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