Investors are betting on golf's decline

Stocks that have exposure to the sport are seeing increased short interest lately.

By MSN Money Partner Aug 27, 2014 2:03PM
By Matt Clinch, CNBC

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 (ADDYY) sounded the alarm bell in a recent earnings release.

Credit: © Spaces Images/Getty Images
Caption: Golf ball on empty putting green


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. Nike (NKE), 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-to-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.


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.


California-based Callaway (ELY) 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 (DKS) 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 Aug. 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.


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105Comments
Aug 27, 2014 4:27PM
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“All sports are played in three hours or less, except golf,” Jack Nicklaus said. “Golf has three problems: It takes too long, it’s too hard and it’s too expensive.” - March 2014 in a Columbus Business Journal article quote.   
Aug 27, 2014 4:22PM
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What with $100 green fees, $100 cart rentals, and $10 for a beer, i simply don't understand why the game (note: I did not say sport) is losing it's luster particulary with the millenials. Not to mention our robust economy.
Aug 27, 2014 2:38PM
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Golf isn't as elitist as polo, but it's spent the last decade or so trying. It makes me so angry I could just throw my drink across the lawn.

Aug 27, 2014 4:20PM
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Golf was a good game at one time when it was sophisticated somewhat with people that respected one another.... Today you have lot of trashy people ready to bounce the ball off your head or tell you that the ball you are about to hit is their MF'ing ball... and you will lose your life if you hit the SOB.... who wants play around that riff-raff? Ball had my mark on it....
Sep 1, 2014 12:43PM
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A nation of workers paid $7.25 an hour cannot afford golf.

Duh.

Aug 27, 2014 4:34PM
Aug 27, 2014 5:52PM
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It use to be that golf was considered a game for exercise and relaxation.

Today everyone rides a cart as close to the ball as they can and by the time their round is completed their blood pressure is higher than it was before they started. Sooo- What's the  point?

Aug 27, 2014 4:32PM
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I want freedom with my recreational activities, i.e., no golf tee times, no group in front of me slowing me down, or behind me speeding me up. Skiing, cycling and hiking let me start and stop whenever I want; eat lunch on thee side of a slope, trail, road; and speed up or slow own as I want, and all three are cheaper than golf (well, skiing can get expensive if you go to the big brand resorts on weekends without discounts), but it's all about freedom and individuality.
Aug 27, 2014 6:48PM
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Go to any public golf course, and what kinds of people do you see?  Old people and kids on the high school golf team.  Rarely do you see ANYONE in the 30-50 year old range.  Why? Is golf too expensive? Is everyone too busy working to make ends meet to stop to play golf? Do less people want to spend time what little free time they have with their families?


I don't know.  But golf can't keep going like it has been.  If it does, then the older golfing generation will be the last one to step on the course.


Aug 27, 2014 5:44PM
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When I was a kid around the early 1960s and I started golfing, our only golf course which was starting up in po-dunk Wisconsin charged 10 cents a hole prior to them getting all 9 holes operational.  Now it is around $35 for 18 holes.  Any wonder why the sport is in decline?
Sep 1, 2014 9:38AM
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Using the great Sears and JC Penny example, golf courses have continued to raise the price for a round and all the relevant clubhouse fees. It is a matter of losing a few clients every time but making the loss look better in the profit margin. Eventually, of course, there won't be enough of a customer base left to justify the high cost of maintenance to satisfy the needs of a few elitist golfers. Marginal public courses which are now barely able to exist will decay into barren park land. This won't happen overnight but in the long run many courses will stop being viable enterprises. Golf will recede back to the millionaire enclaves of the 1920s.
Aug 27, 2014 7:41PM
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The Golf Channel (owned by NBC) had a story last week about making golf fun. Even the USGA is behind the concept; let go of the formality of the "rules" unless you're playing in a tournament or maintaining a handicap; go out and have fun. Don't spend more than two minutes looking for a ball. Concede the obvious putts.


Part of the problem is golfing 18 holes does cost a lot of money and takes a lot of time. One solution? Golf nine holes.

Sep 1, 2014 10:12AM
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Good! There will be less players to slow the pace.

Sep 1, 2014 12:42PM
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It wouldn't have anything to do with outsourcing our factories to slave-wage countries in order to support the greed of capitalism now, would it?

The article talks of golf becoming unaffordable...

in a capitalist nation of low-wage or unemployed people, I can't imagine people can't afford $1000 worth of gear or $50+ green fees..

The only way to grow an economy is with wages.

Low wage Republican greed is a time-again proven economy killer.

Sep 1, 2014 12:36PM
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It isn't about golf idiot, it is about the money. Most older course's are now located in prime locations for development. Screw those people who paid for the old development that included course and green space. Counties and cities are using the law to acquire these places for development and of course getting kick backs. Making it difficult or expensive can run anybody out of business. Frigging casinos on the beach in NJ going out of business? Yeah right like that could be a failed enterprise.
Sep 1, 2014 10:29AM
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I payed golf in high school and college , played almost everyday . I have two children now and I would not think of playing golf for 4 hrs and more on weekends , add the cost glf is not in my budget. Country Clubs are going bankrupt and more to come . too bad I loved the game in past tense
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Golf courses across the nation will be closed in a few months. This is speculative investing that makes sense.
Sep 1, 2014 9:48AM
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I switched to disc golf years ago. It's mostly free, costs less then $100 for starter equipment and the culture is more relaxed. When having a bad day in disc golf, your disc will still fly.


There is zero pretentiousness in disc golf. It attracts professionals and hippies alike and we all get along great. I play about 4 time a week for a very modest cost (mostly gas).


Try joining your local disc golf community. You'll be surprised how welcoming they are.


Tom in NC

Sep 1, 2014 11:32AM
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Overhyped, over competitiveness and  overpricing, have pretty much sucked all the relaxation and fun out of what used to be a pleasant and affordable way  for a person with the average wallet to get some fresh air and make a long walk interesting. Equipment marketing also has a lot to do with the decline as well, convincing people that they can "buy" their way to a better score by spending X amount of dollars on the latest  sticks and balls, when in realty what is required is simply patience, practice and possibly some lessons, but who has the time for that?
Aug 27, 2014 5:56PM
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well you know this is Bull......  The stores would never be considered as ones that actually HAD golf "professionals" in their staff in the first place......

 

"""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."""

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