Sports Business: GOLF
STRIKING WHILE THE IRONS ARE HOT
Tommy Armour may have the next big thing in golf clubs
As any golfer knows, a case of the yips on the putting green can turn an otherwise solid round into a disaster. Maybe that's why Odyssey Sports, the putter business that Michael Magerman co-founded in 1990 and that Tommy Armour Golf acquired a year ago, is on fire, with sales expected to triple this year, to $33 million. More than 160 Professional Golf Association Tour pros use the unmistakable silver-headed club with the black insert that is said to put more feel into a putt--and possibly help soothe the jitters.
Now, the 34-year-old Magerman, who became CEO of Tommy Armour as part of the buyout deal, is out to shake up the irons business. He wants to loft Armour into the top tier of golf companies with the introduction in early August of a set of bigger-than-oversize clubs, the Ti 100s, made from one of the hottest materials in the industry: titanium. "We've got the product that will make us No.1 in irons," boasts Magerman. "It's the replacement for every set of irons out there."
OUT OF THE WOODS? Over the past two years, superstrong, lightweight titanium--which allows club heads to be made even bigger--has galvanized the woods market. Magerman is wagering that the promise of greater length and accuracy, and a larger sweet spot, can be transferred to irons--and to any golfer willing to fork over as much as $1,200 a set.
With its irons introduction, Magerman is shooting for the same kind of breakout product that Callaway Golf Co. rode to industry leadership with its Big Bertha woods, or the more recent success Taylor Made Golf Co. has achieved with its Burner Bubble shafts. By most estimates, Armour, a perennial also-ran, now ranks fifth among premium-priced club makers, behind Callaway, Taylor Made, Cobra, and Ping.
Thanks to stepped-up funding from its parent, conglomerate U.S. Industries Inc., Armour is slapping down marketing bucks: Its budget this year is up 40% over a year ago and will rise an additional 60%, to more than $20 million in the fiscal year beginning Oct. 1. That will at least put it on the same course as its richer rivals. And the spending is shifting from print to high-profile TV. The new irons will be introduced on national broadcast during the PGA Championship on Aug. 8-11 and will feature Dallas Cowboys Troy Aikman and Nate Newton.
The stakes are big for Armour and U.S. Industries. Armour is one of the smallest companies in USI's portfolio, and its earnings have been erratic. Last year, the company lost about $1 million on sales of $50 million, but with sales rising to an estimated $87 million in 1996, Donaldson Lufkin & Jenrette Securities Corp. analyst Jack Blackstock reckons Armour will turn a profit of about $6 million.
The irons launch is an outgrowth of the research and engineering center Magerman set up last year in Carlsbad, Calif., the Silicon Valley of the golf-club business. Its mission: work closely with designers and outside manufacturers to cut costs and reduce time to market from two years to six months, critical in the ever-changing golf industry. One early obstacle: Magerman was told the irons would cost $100 per stick to make, just about where he planned to price them. By reducing the weight in the grip and shaft, the engineers were able to wring enough cost out to make the irons viable.
A big hit with the titanium clubs will position Armour for an initial public offering, most observers and Magerman suggest. The danger, of course, is if the irons don't catch on--or are quickly copied by a larger rival, such as Callaway. Several industry sources believe Callaway's research and development team--like many industry majors--may be readying a titanium iron for the market. Bruce Parker, Callaway's head of merchandising and sales, will say only that his research team has been testing the material and studying products on the Japanese market. But, he adds, "we haven't seen anything with demonstrably superior performance." Another concern: Golf-equipment sales, after doubling from 1993 to 1995, to about $1.5 billion, now appear to be flattening.
Skeptics argue that players change irons far less frequently than woods, and that they will be unwilling to spend several hundred dollars over the current premium price for clubs on an unproven product. Head pro Bob Ross of the Baltusrol Golf Club in Springfield, N.J., says he's "a little worried that titanium irons won't give you the same feel" as traditional stainless steel. Cobra Golf Inc. considered titanium for its new irons, due in September, but decided against it. Price was one issue, says CEO Mark C. McClure. Sheer size--in Armour's case, up to 20% larger than oversize--was another. "I believe there is an optimum size for irons, and in the rough, with more surface on the club head, it doesn't perform as well," McClure says, adding that he hasn't seen the final Armour version.
Despite the naysayers, Magerman is clearly making rivals take notice of Armour for the first time since the late 1980s, when the company introduced its wildly popular 845 series of irons. Its 1994 follow-up, the 855s, were late to market and by most accounts a disappointment. Armour's acquisition of Odyssey, and with it Magerman, brought some badly needed entrepreneurial flair to the company, which is named after a Scottish touring pro.
COPYCAT. Magerman was only a fair-weather golfer when he co-founded Odyssey in 1990. He had gotten out of the University of California at Los Angeles, gone to work for an interactive-TV outfit, and was studying for an MBA at night when family and friends staked him to starting a golf company. "I'm the first to admit I copied a lot of things from Ely Callaway," Magerman says. Five years later, he had a putter that was making a name for Odyssey and Tommy Armour knocked on his door.
Now, Magerman concedes, "we're betting the franchise." If Tommy Armour was looking for someone to take a hard swing at the competition when it tapped this young exec in a hurry, it certainly found the right guy.By Richard A. Melcher in ChicagoReturn to top