For golf, COVID is even better than Tiger

Golf was just working its way out of the rough when the pandemic hit. After an initial shock last spring, the sport is poised for its best year since Tiger Woods was at the height of his popularity two decades ago. There is still plenty of green for investors to aim for.

Rounds played in the U.S. fell by 8.5% in March and a whopping 42% in April compared with a year earlier, according to the National Golf Foundation, as many courses were closed. But the socially distanced nature of the sport led to a furious rebound. By last month, rounds played were 37% higher and up handsomely for the entire year, even with the spring lockdowns. Even though other parts of their business such as clubhouse dining remain depressed, golf courses find themselves in far better financial shape than a few years ago.

Back in 2016, a quarter of public golf courses surveyed by the NGF said they were in "poor" or "very poor" financial condition -- slightly worse than in the aftermath of the 2008-09 financial crisis. By last year, only 8% of public courses reported similar conditions. The proportion reporting that they were in "good" or "great" shape had doubled.

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Stock-market investors have few, if any, opportunities to benefit directly from courses' reversal of fortune, but there are other parts of the golf business that depend on financially healthy fairways.

The handful of stocks that give investors exposure to the sport have delivered strong returns after an initial pandemic shock. Equipment and apparel maker Acushnet Holdings, known for brands such as Titleist and FootJoy, has edged the S&P 500 by 14 percentage points in the past year. Golf Galaxy owner Dick's Sporting Goods has beaten the market by 32 percentage points. Equipment seller Callaway Golf, which lost three quarters of its value in the first weeks of the Covid-19 bear market, has rebounded, beating the market by 13 percentage points. Along the way, Callaway gained even more exposure to the sport by merging with driving-range operator Topgolf.

Sports-apparel and equipment giant Nike shocked many by exiting the golf business in 2016 and competitor Adidas sold off some brands the following year. Retailer Golfsmith declared bankruptcy in 2016. Between 2003 and 2017 the number of U.S. on-course players fell to fewer than 24 million, from nearly 31 million. Part of that was a "negative hangover" following the financial crisis that led to less business golf, says Randy Konik, an analyst at Jefferies.

But equipment sales began to rebound soon after. In 2019 the number of first-time U.S. players hit 2.5 million, exceeding the previous high of 2.4 million in 2000 when Tiger Woods was racking up trophies and inspiring young players. One reason is that more baby boomers have started taking up golf.

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"People aren't giving enough thought to how much of America is getting older," says Mr. Konik. "Golf is the perfect sport for that part of the population."

A more recent boost for the sport comes from younger professionals now working remotely. Fitting in 18 holes on a weekday was once an expensive and time-consuming way to cultivate business contacts. More flexible schedules make hitting the links closer to home easier.

But the really significant boost for the game might lie with younger, more casual players. While the most recent traffic figures from Topgolf were still lower in the fall compared with the year-earlier period -- not surprising given the less socially distanced nature of its facilities -- executives see promising trends. Indoor ranges present a lower barrier to entry. There were just 5.4 million off-course golfers in 2014 but nearly 10 million in 2019, according to the NGF. Just over half of Topgolf's guests identify as nongolfers and 75% of those nongolfers said they were interested in playing on a course.

A study conducted by Golf Datatech showed that it was novices who drove strong sales of golf equipment in 2020. Spending by serious golfers actually declined, even though total equipment sales surged. Among items that sold very well were so-called boxed sets that include the entire set of clubs in one package, which tend to be inexpensive and favored by beginners, noted Tom Stine, partner at Golf Datatech.

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Callaway recorded its highest-ever net sales and earnings in its most recent reported quarter, with sales up 11.6% despite a tough comparison year. In 2019's third quarter, Callaway had seen 62.3% sales growth from a year earlier, helped by its acquisition of European apparel company Jack Wolfskin. Acushnet saw 26% U.S. sales growth in the third quarter compared with a year earlier. Sales in Japan, the market Acushnet said is still most impacted by Covid-19 restrictions, were 24% lower.

What could make golf's recent upswing even better? The sort of excitement that Tiger Woods created in the late 1990s could be rekindled by some of the young players now on the scene, such as Dustin Johnson and Jon Rahm. Tiger himself is showing flashes of his old brilliance.

Even without him making a comeback, golf is back with a full-throated roar.