MONEY Daily: He may breathe new life into golf, but what can Tiger Woods do for Nike?
Thursday, August 29, 1996
He may breathe new life into golf, but what can Tiger Woods do for Nike?
by Lloyd Chrein
You may like the unorthodox way Tiger Woods plays golf. You may like the fact that this young, talented, photogenic amateur champion is going to compete in a sport dominated, as one golf enthusiast puts it, by "men in bad pants." But if you own stock in one of the big sports companies that are funding Woods' trip to the majors, will you like what he does for your bottom line? Wall Street isn't so sure.
"Tiger Woods may do for golf what Michael Jordan did for basketball, that is, the sponsors take a chance on him and he turns out to be the best player who ever lived," says Peter A. Russ, a securities analyst with Shelby, Cullom, Davis & Co. "But golf certainly isn't basketball, and Woods is an unproven talent in the pros. It's still hard to say."
Woods, who is 20 years old and has been in the spotlight for several years, formally announced Tuesday that he is going to forego his final two years at Stanford University and take to the links as a money-making professional. He is reportedly going to receive an endorsement package from Nike worth $40 million over five years and another $3 million over three years for promoting Titleist golf balls. Analysts agree that both Nike (NYSE: NKE) and Titleist owner American Brands (NYSE: AMB) are picking a good prospect.
"He's intelligent, he handles himself well, he has a high degree of character, he's close to his family, he's photogenic -- all the things that go into being a successful endorser, he's got," says Scott Emerman, an analyst at Dean Witter Reynolds. Adds Russ: "From Nike's perspective, here you have another major endorser who has the potential to create excitement in what is a new area for the company. Nike thinks it should get its share of this sport like they have in basketball and track."
There also seems to be little doubt that the charismatic Woods can stir up the otherwise sedate golf scene. His popularity has already sparked network interest. His scheduled appearance in the $1.2 million Greater Milwaukee Open, which begins Thursday, prompted ESPN to add coverage of the tournament on Thursday and Friday. And most of all, he has a winning record.
Woods' most recent feat was his record-breaking third consecutive win at the U.S. Amateur tournament. He has participated in 17 pro-level events since 1992, and became the youngest U.S. Amateur champion in 1994. He won the U.S. Junior Amateurs in 1991, 1992 and 1993, putting him with the legendary Bobby Jones as the only golfers ever to win a USGA event six years in a row.
The question is whether Woods can generate enough interest to sell the requisite shirts, clubs, balls and shoes. Hard-core golfers have a mixed reaction. "The problem is not what he can do for the sport but what he can no longer do for the sport once he turns pro," says Jeff Wallach, author of Beyond the Fairway: Zen Lessons, Insights and Inner Attitudes of Golf.
"There's something more appealing about someone who does it purely for the love of the sport, not necessarily for money."
That said, however, Wallach believes that "now there's a reason for people to watch golf. There's the element of drama, which people like. When Cal Ripken was going for the record consecutive games, people who didn't ordinarily watch baseball were tuning in to see if he could do it. People will be watching to see if Tiger Woods can do it."
But will that excitement translate into people walking around wearing golf paraphernalia? Maybe, say analysts, but not necessarily. First, the game's popularity is necessarily limited by its playing area. "Golf has problems that basketball doesn't," says Russ. "With basketball, all you need is a 94-by-50-foot court -- not even that."
According to the National Golf Foundation (NGF), 18-hole courses need an average of 120 acres. However, your chances of living near a golf course are pretty good: there were 15,390 courses, both 9-hole and 18- hole, in the United States at the end of 1995, with 468 courses built or expanded that year, says the NGF.
Another strike against golf is that it is generally perceived as a sport for the well-to-do. Indeed, it does draw more players when the rich are getting richer, says NGF spokesperson Judy Thompson. The NGF estimates that there are 25 million golfers in the country, a number that has remained fairly consistent for the past five years. The only surge came at the end of the go-go 1980s, when there were 27.8 million golfers, says Thompson. Yet the truth is that you don't really have to be rich to play. Occasional golfers spend about $180 per year on equipment and fees; frequent players pay upwards of $1,700, according to the NGF. Greens fees can be as low as $8 and as high as $200, with the median at about $22 for an 18-hole outing.
You don't have to be incredibly talented to play, either. "I can watch someone like Tiger Woods make a shot and know I could some day make a shot just like that," says Wallach. "But I'll never play like Michael Jordan." Golf is also making its way out of the middle-class suburbs and into the inner cities, says Thompson. Major golf organizations -- the PGA, USGA and LGA -- sponsor programs that bring kids from urban areas out to the links. "They're trying to make golf accessible to everyone," she says. And it seems to be working. According to NGF statistics, the largest-growing segment of golfers is the 12-to-17-year-old group, which jumped to 2 million in 1995 -- a 17% increase from 1994.
That bodes well for those backing Tiger Woods, who is both young and African-American. "If this kid becomes a role model for other kids, that's suddenly access to a new realm of golf buyers," says Wallach. Nonetheless, analysts are skeptical that this alone will do anything for stock prices. Russ says that Nike won't be a big play because golf represents too small a piece of its business.
"Backing Woods is another good move in a series of good moves, but this alone really doesn't mean anything," he says, noting that Nike is definitely "not a buy." He values the stock at around $80, and it now sits at about $110. "If you own it, keep it, because it's too good a company to sell and there's nothing to replace it with," he says.
Russ notes that those looking to get into the sports equipment market should instead look at Reebok (NYSE: RBK), which happens to have top pro golfer Greg Norman in its endorsement stable. And an even better pick, he says, is American Brands, which also makes Foot-Joy golf shoes and now sells in the low $40 range.
"This is the cheapest and most conservative way to go. You're looking at a stock that could be $50 within a year," he says, noting that "American Brands makes equipment that golfers will need no matter whose shirts they buy."
For more Web-formation, visit:
http://www.ambrands.com/ American Brands
http://www.ngf.org National Golf Foundation
http://www.reebok.com/ Reebok Marketwatch
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