DALLAS — Just weeks after a disappointing earnings report, Topgolf company officials announced plans to get spun off from parent company Callaway.
The Dallas-founded golf entertainment venue, which was purchased by the golf manufacturing giant Callaway back in 2021, is expected to now operate independently as a stand-alone company, Topgolf Callaway officials announced in a press release Wednesday.
The spinoff move, which is expected to be executed in 2025, comes amid a decline in sales at Topgolf for the second consecutive quarter this year.
On Topgolf Callaway's earnings call in August, company president and CEO Chip Brewer said officials were exploring options, including a potential spinoff, attributing Topgolf's issues to a decline in traffic at the company's dozens of locations.
On Wednesday, the potential spinoff became a reality.
Topgolf Callaway announced that its board "intends to pursue the separation of its business into two independent companies," Callaway and Topgolf.
Brewer in a statement noted that Topgolf "has a different operating model" than Callaway, which produces golf equipment and apparel.
The spinoff "will be position Topgolf and Callaway for success and maximize shareholder value," Brewer said.
John Lundgren, the Topgolf Callaway board chairman, said the spinoff was a result of the company's "thorough strategic review," which Brewer discussed on the August earnings call.
"The creation of two independent companies, each with a distinct focus and proven business model, is intended to drive continued momentum in both businesses and deliver value to all our shareholders," Lundgren said.
Under the planned restructuring, Callaway would spin off at least 80.1% of Topgolf "to obtain the desired tax-free treatment" for tax purposes, while retaining "a limited ownership in Topgolf for a period of time."
"In connection with the separation, Callaway is expected to retain all existing Topgolf Callaway Brands financial debt, including both the term loan and the convertible notes," the press release said. "Topgolf will retain its venue financing obligations, but will have no financial debt, and be funded with a significant cash balance."
Also under the spinoff, Topgolf will reduce its development of new venues that were planned in 2025 to a "mid-single digit range," the release said. Brewer in August had said the company was planning to expand by around 10 venues per year.
Callaway and Topgolf will maintain a relationship through commercial agreements, such as Callaway remaining the exclusive golf equipment partner for Topgolf.
"Our employees' dedication and hard work has enabled us to take this next step in the Company's evolution," Brewer said in the release. "Our Callaway and Topgolf businesses both employ very talented and dynamic people. I am confident that we will maintain the commitment to excellence that has been key to our success."
Given the speculation from the August earnings call, the Topgolf spinoff wasn't a big surprise when it was announced Wednesday. But it did underscore the current reality for Topgolf, which, in many ways, pioneered America's booming "eatertainment" business with an easy-entry form of sports paired with a full-service bar and kitchen.
Now, whenever a similar venue pops up, it's often colloquially referred to as "The Topgolf of [insert sport here]."
Topgolf's place in the modern golf scene only seemed to be secured further by the Callaway acquisition in 2021, when Topgolf became a key part of Callaway's business at a time when golf was seeing a pandemic-era surge.
That momentum apparently hasn't sustained itself through to 2024: According to Topgolf Callaway's second-quarter earnings report, sales at existing Topgolf locations were down 8% year over year through June 30 – figures that the company said were "driven by softer-than-expected traffic" as it navigates what it calls "cyclical macro challenges."
Topgolf Callaway also reported around an 8% year-over-year drop in revenue on the equipment side of the business through Q2 – but that was to be expected after the launch of last year's Big Bertha woods and irons line, the earnings report said.
The company's bigger concern, the report indicated, remained the Topgolf side of the business. Which, it came to light in its recent earnings report, is why the brand was considering the possibility that Topgolf could be spun off from the larger company.
Topgolf locations saw continued drops in revenue in both quarters of 2024, according to data presented in the earnings report. Topgolf customers rent hitting bays by the hour, and revenue from rentals of one to two bays were down 5% in the first quarter and 8% in the second quarter, the data said.
The steeper drop was seen at the three-bay level, where revenue numbers dropped 16% in the first quarter and 9% in the second quarter. Topgolf attributed the three-bay revenue drops to fewer corporate events being held at the venues.
Brewer attributed the decline in sales to a decrease in customers, not the amount those people are spending when they get to the facility.
"It's really mostly a traffic issue right now," Brewer said on the earnings call. "Our business is experiencing a slowness in traffic."
Brewer on the call attributed the dip in customers to the current economic cycle and what he called a "post-COVID normalization." Brewer said the company is ramping up efforts in its digital sales and marketing to turn things around, as that's been a past path to success at Topgolf locations. Brewer also mentioned the company's focus on creating incentives for customers to visit their locations at least three to four times per year.
Brewer in August said he remains confident Topgolf can succeed in a "normalized environment," although he warned that year-over-year sales might continue to dip throughout 2024.
