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Topgolf’s Asian Invasion

Here at Iron Edge VC, we seem to spend a great deal of time discussing Topgolf. There’s a reason for this. Several reasons, actually: we love to play golf, we enjoy a first-class good time when we need to blow off steam, and perhaps most important, this company is really consistent in generating news about which we always get very excited.

 The story that turned our heads last week involves a new leap forward in Topgolf’s global augmentation. It revolves around the company’s massive franchise agreement with Sports Entertainment Asia H.K. Limited, or SEAL. A newly created division of SEAL will house the pact, which has the additional backing of Texas private investment firms JLM Financial Partners and Chaucer Global. The ambitious expansion will cover China and the Philippines. According to Topgolf CEO Dolf Berle, SEAL’s well-established development and operating experience is a huge bonus that comes with their financial backing.

 In our recent essay “Tee Time at Topgolf?” (October 10, 2019), we crunched the numbers to paint a picture of how the rapid establishment of new Topgolf locations affects revenue growth. Our projection was that at the end of this year, 57 locations could potentially generate $1.2 billion in revenue. Add to that the company’s publicly stated goal of cutting the ribbon on more than 70 new outlets in the next few years, and those figures really get interesting. Much of this expansion is pegged to take place in the United States. Now, with the SEAL announcement, Berle is revealing an entirely different hand that he had apparently been playing close to the vest. In television appearances and in other interviews, the CEO had always been vocal about the abundant American opportunities, giving only secondary mention to international growth plans. While announcing the SEAL deal, Berle showed us what he had been up to behind the scenes. He said that a thorough examination of cities across the globe focusing on likelihood of Topgolf prosperity suggests that the rest of the world has double the potential for success than that of domestic venues. The challenge of navigating variables related to the construction and operation of a complex enterprise overseas was the easy part: franchise it out to local experts. SEAL has prior experience bringing American institutions like Domino’s Pizza and Starbucks to the Far East. Introducing Topgolf to this new audience will be, in many ways, a larger-scale endeavor, but the territory is far from unfamiliar.

 Let’s detour, now, into an abridged history of golf in China. More than a thousand years ago, the first appearance of a golf-like activity in China came in the form of Chuiwan, a game played with a ball and a stick. Notably absent were Nike endorsements, and hot dogs and Coors Light at the halfway house. Things developed over time and the sport evolved until its crashing halt 1949, when Mao Tse-tung banned golf for being “too bourgeois”. Or it might have been that Chairman Mao had spectacularly bad round one day and decided to ruin it for everyone. Whatever the case, golf in China was finally allowed again in 1984, with an Arnold Palmer-designed course built on the mainland. In 2004, the development of new courses was banned in the interest of land preservation and, of course, this sparked a boom in golf course development. Over the next eleven years, the number of golf courses in China would nearly quadruple. This unusual circumstance was the direct result of the appeal of the forbidden combined with the… er… innovation of powerful business entities in Communist societies. It goes something like, “Sure, building new golf courses is against the law, but this here ain’t no golf course. It’s a White Ball Relocation Facility. With all the amenities. Invite your friends!” Anyway, over the five years that have followed, all sorts of political, moral, and philosophical restrictions have been imposed, loosely interpreted, and lifted at odd intervals. Underneath it all, presumably, the Chinese government recognizes that golf can attract tourism dollars, so one can safely assume that the game will always have some form of presence in the country.

 Golf is undeniably growing in China. The province of Hainan is not affected by the ban on development, so it is home to the multibillion-dollar Mission Hills Haikou golf complex, with 22 courses and several luxury hotels covering a space one-and-a-half times the size of Manhattan. At its completion, Mission Hills Haikou will be one of the largest golf complexes in the world.

 But, you may ask, is Topgolf taking a risk by leaping into a market whose government has such a thorny relationship with golf? We would suggest that it is only a very slight, and highly calculated risk. Golf’s appeal is growing explosively among the Chinese populace. The number of “core” golfers (those over the age of 18 who play more than eight rounds a year) has an annual growth rate estimated to be 7.5%, with projections of a hockey stick spike in 2020. And remember, Topgolf is not in the business of building golf courses. They create all-inclusive entertainment complexes built around the golf experience. The venues take up less of that precious Chinese land and water, and a Topgolf visit is much more affordable than the prohibitive greens fees (averaging the equivalent of more than $100 U.S.) at most Chinese links. With the local insights of SEAL, the road will be well-paved for Topgolf to satisfy the golfing urges of the masses in Asia. The target audience in that part of the world is bursting at the seams and, perhaps best of all, Topgolf has somebody else doing all the heavy lifting as they sit back and collect voluminous royalties. Adding this to the revenue projections that we discussed earlier, we remain most enthusiastic about Topgolf’s future.

 Topgolf is not yet publicly traded, but there is a way to claim a piece of this exciting company before any public offering. We at Iron Edge VC are very proud to have pre-IPO access to Topgolf. Valuation estimates vary, but our inventory is still at the low end. If you would like to learn more, or if you know of anybody else who would, please do not hesitate to contact us by clicking “Get in Touch” below.

As always, shares in our Fund are available on a first come, first served basis.

5f6e0d464e388c4975685025 Paul Min

Paul Maguire

Founder And Managing Partner