How Topgolf Became A $3 Billion Business
Huddle Up is a 3x weekly newsletter that breaks down the business and money behind sports. If you are not already a subscriber, sign up and join 100,000+ others who receive it directly in their inbox each week. Today At A Glance:Topgolf is one of the fastest-growing businesses in sports. So today’s newsletter breaks down the economics, including how much each venue costs to build, their profitability, why Callaway acquired the company for $2 billion in 2021 and more. This newsletter is also available via podcast on Apple or Spotify. Enjoy! Today’s Newsletter Is Brought To You By Hyperice!
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So what’s driving this growth? Covid, of course, had something to do with it — people wanted to get outside to socialize and exercise while gyms were closed, and a portion of that crowd has continued to enjoy playing (and watching) the game of golf. But still, a large portion of this is undoubtedly driven by non-traditional models. Take Topgolf, for example. The arcade-style driving range business currently has over 80 locations in 9 countries. Last year, they brought in $1.5 billion in revenue alone, and 10% of all recreational golfers say Topgolf was their introduction to the sport. Topgolf Annual Revenue
And Topgolf’s business is only getting stronger. In 2021, the company was acquired by Callaway at a $2 billion valuation. They opened 13 new locations in 2022 and expect to open more than 100 others by 2030. And now, many other sports, like Formula 1, are trying to copy their model.
Topgolf OverviewFounded in 2000, Topgolf introduced a new way to play golf. They overhauled antiquated driving ranges, turning them into entertainment venues for people to play technology-enabled golf games accompanied by friends, music, food, and drinks. And the concept worked. Topgolf’s total addressable market is significantly bigger than a traditional golf course. And it’s more diverse, too, with Topgolf’s entertainment-first model bringing in younger, female, and non-white players.
This popularity has brought immense financial success. Topgolf sold 14% of its business to Callaway through two separate transactions in 2006 and 2018. And then Callaway returned in 2021 to acquire the remaining 86% at a $2 billion valuation. Topgolf now generates $1.5 billion in annual revenue — a 16% CAGR over the last five years — and the brand accounted for 39% of Callaway’s $3.99 billion in 2022 revenue. Most of this revenue comes from physical locations, but Topgolf also has a growing technology business that was used by nearly 275 golf TV broadcasts last year. Topgolf Venue Breakdown & EconomicsTopgolf currently has more than 80 venues in 9 countries. They opened 13 locations last year alone and plan to have more than 150 venues open by the end of this decade. Most of these venues (75%) have 100+ bays and cost $30 to $40 million to build. They then generate between $20 to $28 million in annual revenue, targeting a cash-on-cash return of 50% to 60% and an estimated payback period of just 2.5 years.
The economics tend to be so strong because most of Topgolf’s revenue comes from events and food and beverage — not gameplay, like a traditional driving range. Topgolf US Venue Revenue Breakdown (2019)
But this commitment to growth has taken a toll on the company’s finances. For example, Topgolf generated just $3 million of profit in Q1 2023, mainly because they have $1.2 billion in venue financing liabilities as they try to add 10 locations each year. Topgolf’s Toptracer Range TechnologyIn addition to a portfolio of 80+ locations that generate $1.5 billion in annual revenue, Topgolf is also the owner, operator, and licensor of its Toptracer Range Technology. This is the same technology you see on TV, showcasing the flight path, distance, and ball speed of every shot during 275 national TV broadcasts last year alone. But Topgolf also licenses this technology to individual driving ranges, with 750 driving ranges in 31 countries encompassing 22,000 bays using the technology today.
The financials are fascinating, too:
And while this technology represents a small part of the business today (3%), Callaway believes it can eventually be a $200 million-plus per year business. That’s because they installed 1,500 Toptracer bays in Q1 2023 and plan to install more than 7,000 this year. The Future Of Topgolf (And Callaway)Topgolf has built an incredibly impressive business. They went from $0 in annual revenue to $1.5 billion in two decades. They now have nearly 10,000 employees, and 65,000 people visit their venues every day throughout the year. But Callaway’s story doesn’t excite investors nearly as much. For example, Callaway’s stock hit its all-time high of $38/share in 1997 and now sits at $18/share 20+ years later.
But this is where Topgolf can help. Callaway has already spent $750 million on acquisitions like Jack Wolfskin, TravisMathew, and Ogio, yet Topgolf already accounts for nearly 40% of the company’s revenue and is only getting bigger. The company is now putting Topgolf logos on Callaway athletes like World No. 1 Jon Rahm and Sam Burns. And they also sell Callaway clubs at all Topgolf locations, offering a 50% discount if you spend $300 on a customized club fitting.
So by acquiring Topgolf and integrating its portfolio of products, Callaway has the opportunity to expand golf’s total addressable market and make them Callaway-dependent customers from Day 1. Now, it’s time to see if they can execute. If you enjoyed this breakdown, please consider sharing it with your friends. My team and I work hard to consistently create quality content, and every new subscriber helps. I hope everyone has a great day. We’ll talk tomorrow. Interested in advertising with Huddle Up? Email me. Your feedback helps me improve Huddle Up. How did you like today’s post? Loved | Great | Good | Meh | Bad Want More Detailed Sports Business Breakdowns? Subscribe To JPS.The Joe Pomp Show is a 3x weekly podcast where I break down the business and money behind sports. Think of it as the same high-quality work you read here, just deeper. There are exclusive interviews with people like Dana White, Lance Armstrong, and Troy Aikman, and you’re guaranteed to learn something new. Huddle Up is a 3x weekly newsletter that breaks down the business and money behind sports. If you are not already a subscriber, sign up and join 100,000+ others who receive it directly in their inbox each week.
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