Killer Course : New Owners of Lynx Enter a Golf Club Industry Ruled by 4 Rivals
Woodland Hills accountant Edward White just helped raise $25 million to buy Lynx Golf Inc. But he’s still a long way from the green.
Lynx is a struggling club brand, which is why Zurn Industries, an Erie, Pa.-based power plant conglomerate, unloaded it earlier this month after losing money in the golf business since 1991.
In its most recent fiscal year, Lynx lost $4.5 million on $45 million in sales, which gives it about 4% of the $1-billion-plus domestic golf club market. The Industry-based company is stuck in a logjam with other second-tier brands.
But on short notice, White hustled up about 100 investors to buy Lynx, including two of his clients, actor Jack Nicholson and Allen Paulson, who made his fortune running Gulfstream Aerospace. Other investors lined up by White include actor Clint Eastwood, Los Angeles Lakers executive Jerry West and pro golfer Fred Couples, Lynx’s best-known equipment endorser.
White, now Lynx’s chairman, said they bought the company on the cheap, for less than book value, and only after Zurn unloaded a foundry that was Lynx’s biggest profit drain.
Like most other firms, Lynx will now buy club heads from outside manufacturers, then assemble the final product. After also cutting its staff from 200 to 120, Lynx has been profitable for several months, White said.
And with some creative products and aggressive marketing, White figures he can grab more market share, take Lynx public in a year, raise $20 million from Wall Street and get a big return.
But others have their doubts.
“The foundry [problem] doesn’t answer the question why consumers don’t go in and buy more Lynx clubs,” said Shelly Hale Young, analyst with Hambrecht & Quist. “Zurn put a lot of money into the company, yet it still wasn’t enough to grow the business.”
One problem is that the golf club industry is now dominated by four brands: Callaway, Cobra, Ping and Taylor Made, which control 75% of the market, and spend more than $60 million a year in advertising to keep their stranglehold, Young said. Along the way they have pushed aside once-dominant golf brands such as MacGregor, Hogan and Wilson, leaving them and many others, including Lynx, fighting for shelf space.
“Consumers want to look at three or four good brand choices. They don’t want to be bothered with the vast number of other possibilities,” said David Braham, president of World of Golf, a big New York City retailer.
Braham used to carry full product lines of 25 different golf club brands, now he’s down to a handful.
“Lynx has fallen into that second tier. Companies like that either go out, and with better technology and advertising find a way to become one of the big guys, and that’s not easy. Or they get smaller and smaller,” Braham said.
So intense is the marketing rivalry among golf club firms that it’s a bit of an embarrassment for Lynx to have its new vice chairman, Fred Couples, out on the PGA tour swinging another company’s club.
Couples, a popular former Masters champion, has a 5-year, $6-million equipment contract with Lynx, but he now plays with a driver made by Callaway. Several retailers have already noticed that, and Braham said it doesn’t help sell Lynx’s wood clubs.
Ron Drapeau, Lynx’s president, ruefully concedes that Lynx is trying to develop a new driver for Couples. “We’re working with him on an ambitious program to meet his specific requirements.”
Pro golfers, though, like weekend duffers, are notorious for testing new clubs, hoping to solve the timeless mystery of errant shots. Long ago, Arnold Palmer, when he was in his prime, used a Ben Hogan driver instead of a Wilson model that he was endorsing.
Zurn spent about $35 million on Lynx advertising over the last seven years, White said, so he figures he’s taking on a fairly well-known brand. “We don’t need to gain that much” in market share to do well, he said, because the golf industry keeps growing. And he points out that other golf equipment brands have grown like weeds in just a few years.
Countered Young, “Six years ago you didn’t have a brand that was [nearly] a billion-dollar company. The playing field isn’t the same.”
Indeed, the landscape in the golf equipment industry has been dramatically altered, and Ely Callaway is the one who’s redrawn the map.
Callaway, 77, former president of Burlington Industries, hasn’t sat idle in his golden years.
Several years ago, his Callaway Golf Co. introduced a jumbo-size golf driver that he named Big Bertha, after the biggest cannon in World War I, and which he said could launch a golf ball farther than other clubs. Callaway lined up PGA tour pros to use it and often showed up himself at driving ranges to sell a club pro on the wonders of the club.
Soon Big Bertha was putting considerable distance between Callaway Golf and the rest of the industry.
Last year, Carlsbad, Calif.-based Callaway earned a record $97.7-million profit on $553 million in worldwide sales, and its profit bounced up 32% on a 26% jump in sales in the first six months of this year compared with the same period a year ago.
In the golf business, the financial stakes keep getting bigger.
Last winter, American Brands Inc., which owns the Titleist golf line, paid $700 million to buy Cobra Golf. Golfer Greg Norman, who played a big part in popularizing the Cobra brand, picked up about $20 million from his stock holdings in that sale. And American Brands has reportedly signed Tiger Woods, three-time U.S. Amateur golf champion, for about $1 million a year to use its equipment.
Computer-aided designs and lighter-weight composite materials have meant a quicker turnaround in club designs. Drapeau, Lynx’s president, said golf now resembles the fashion industry because product life cycles keep shrinking. New club designs have a product life of “two to four years. It used to be three to six,” he said.
The latest hot golf club material is titanium, which is 40% lighter than stainless steel and allows engineers to re-balance the design to correct hits off the center of the club.
Callaway and Taylor Made were fast to market with titanium wood clubs, and they now dominate this niche. At the Roger Dunn Golf Shop in Canoga Park, titanium drivers outsell stainless steel models 5 to 1, even though titanium drivers cost $100 to $150 more, manager Larry Rem said.
Meanwhile, Lynx, along with the rest of the industry, is left to try to catch up. Lynx has won back some market share in the last 18 months with its Black Cat line of irons.
Still, there’s pressure on White to make Lynx pay off. It always looks bad if an accountant steers his clients into a bad investment.
And what if all of White’s plans go bad?
“I thought of that,” he said. At the bargain price his group paid for Lynx, in the worst case they can always sell off the company “and return capital to investors,” White said.
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Dominant Foursome
Dozens of brands compete in the $1- billion- plus U.S. golf club industry. Four brands, Callaway, Cobra, Taylor Made and Ping, dominate the business, leaving smaller companies to battle for market share and shelf space. U.S. sales in 1995, in millions of dollars:
Callaway: $365
Cobra: $145
Taylor Made: $145
Ping: $130
Lynx: $35
Sources: Seidler Cos., company reports
