Shares of
Topgolf Callaway Brands
were higher Tuesday and again on Wednesday because golf is no longer boring. All it took was Saudi billions and a deal no one saw coming.
In a surprising announcement, the PGA Tour and the upstart, Saudi-backed LIV Golf said they have agreed to merge in a transaction that also includes the European professional golf circuit, the DP World Tour. The parties said they will form a new for-profit entity and that the deal would end current litigation.
One reason the agreement was unexpected is how PGA Commissioner Jay Monahan spoke about the Sept. 11, 2001, attack when discussing competition with LIV last year. Most of the hijackers who flew planes into the World Trade Center and the Pentagon were from Saudi Arabia, though the Saudi government has denied involvement.
“As it relates to the families of 9/11, I have two families that are close to me that lost loved ones and my heart goes out to them,” Monahan told
CBS
sports anchor Jim Nantz in June 2022. “I would ask, you know, any player that has left [for LIV] or any player that would ever consider leaving, have you ever had to apologize for being a member of the PGA tour.”
Monahan has come under fire for his decision to merge. The PGA told Barron’s in an emailed statement that Monahan has the support of PGA directors, including James “Jimmy” Dunne, who cofounded the investment bank Sandler O’Neill. That firm lost about 40% of its staff in the 9/11 attack.
Dunne didn’t immediately respond to a request for comment.
Phil Mickelson was one of the biggest names to move to LIV. He became one of the most controversial after comments made about the tour’s Saudi backers in an interview with Alan Shipnuck.
Mickelson, who later apologized, received $200 million to switch tours, according to reports. Mickelson and LIV didn’t respond to a request for comment.
The amount of money the Saudi Public Investment Fund, or PIF, has lost paying LIV players and running the tour should easily top $2 billion. How much the PIF will put into the new merged tour isn’t known, but it should be “billions” according to the PGA.
That’s a lot of money, but not for the PIF, which has about $650 billion in assets and receives money from the Saudi government. The Saudi government owns about 90% of the
Saudi Arabian Oil Co.
(ARAMCO.Saudi Arabia), and Aramco is expected to generate roughly $120 billion in free cash flow a year for the coming few years.
It’s tough for entities like the PGA to compete with that much cash. What the PIF gets for its investment is a business that no longer loses significant amounts of money. The PGA is an established tour with TV contracts with NBC and CBS paying the tour to broadcast tournaments.
Investors can’t buy shares in the PGA, but Wall Street still seemed happy with the deal. Topgolf stock (ticker: MODG) closed up 5.5% Tuesday, at $19.30, while the
S&P 500
was up about 0.2%, and the
Dow Jones Industrial Average
was flat. Topgolf stock was up another 1.4% Wednesday.
“The recent announcement has undoubtedly caught the golf industry by surprise,” wrote Jefferies analyst Randal Konik in a Tuesday report. “However, we believe that this unexpected agreement holds immense potential to elevate the
sport of golf to new heights.”
More exposure for golf benefits equipment, apparel, and driving range operators. Topgolf does all that. Konik rates shares of Topgolf a Buy. His price target is $56, up almost 200% from recent levels.
Shares of
Acushnet Holdings
(GOLF), which owns the Titleist brand, were up 4.7% Tuesday at $48.81. Konik rates Acushnet shares Hold. He has a $41 price target for the stock.
Barron’s recently wrote positively about Topgolf, shortly after shares tanked following the company’s first-quarter results on May 9. That report included reduced sales guidance for the company’s corporate event business. Shares fell 13%, to $18.80, in response.
Shares are back above $19, up about 13% since the Barron’s article appeared. The S&P 500 is up about 4% over the same span.
Write to Al Root at [email protected]
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