Anchors Away My Boys
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Keegan Bradley had just made triple bogey (three over par) on the 15th hole of a major championship Sunday, and was now 5 shots behind with three holes to play…defeat. But birdies on 2 of the last 3 holes, and 3 straight bogeys by his competitor (Jason Dufner), left him in a playoff. And when he sunk the putt to win on the third playoff hole, Keegan Bradley made a name for himself. He was only the third player to win a major in his first try (Francis Ouimet in 1913 and Ben Curtis in 2003), he was named Rookie of the Year, and (most importantly) he was the first player to win a major using a long putter. And then…the flood gates opened.
Following Keegan’s victory, 2 out of the next 4 major winners, did so while using “long” or “belly” putters. In the 2012 US Open, Webb Simpson launched a come from behind victory. And in the British Open in July, Ernie Els (who uses a belly putter) bested Adam Scott (who uses a “broomstick” putter) in a duel that saw Adam bogey his last four holes. At this point, you’re probably asking yourself, “does this author know he’s writing for The Motley Fool, not Golfweek,” and “what on earth could this have to do with a publicly traded company?” Well the answer is, yes, I am aware this is “The Fool” and everything.
IT’S JUST A PUTTER THOUGH…
The long putter has gained in popularity over the past 5 years, with more and younger players sporting them every day. Companies have dedicated entire R&D departments to developing these long putters, and nearly every big name today produces them. In 1997, Callaway Golf Company (NYSE: ELY) acquired Odyssey, maker of the extremely popular White Hot line of putters. As far back as 2003, Odyssey reported a staggering 50% market share, fueled by the success of its “two-ball” putter. When Keegan won the PGA a year ago, the boost in sales was unprecedented. According to Chris Koske, a director with Odyssey, “We sold 8,000 belly putters in 2010. That number went up to 32,000 in 2011. But 70 percent of that came in the third and fourth quarters, after Keegan’s victory.” Currently, belly putters account for about 12% of Odysseys’ sales. I would only expect this number to grow as the belly putter gains more exposure in the mainstream of golf.
REGULATION & WHAT IT COULD MEAN
The powers at be (The United States Golf Association and Royal & Ancient Golf Association) have finally had to address the issue of long putters, given this recent streak of major champions. R&A Chief Executive Peter Dawson has been extremely clear on his thoughts: “Anchoring the grip end of the putter against the body, whether it is done with a belly putter or a chest putter, is contrary to the spirit and history of the game.” Most insiders believe that legislation will be coming soon that bans the “anchored” style of putting from the game. So the USGA can’t explicitly ban longer putters (there is no rule on the length of a club), it can ban anchoring the club against one’s body during a stroke.
The potential for regulation to eliminate these putters would be catastrophic to clubmakers. Imagine if a regulatory body enacted a policy that rendered almost 20% of your product line illegal. That is exactly what could happen to Callaway’s Odyssey division when the USGA and R&A make a ruling later this year. Callaway also recently announced it was cutting lower-performing product lines to focus on its key components – Callaway and Odyssey. While the policies would be slowly implemented – first on the PGA Tour then in the amateur ranks, a ban would undoubtedly damped production and force the company to really question where it placed its capital.
THE TAKE AWAYS
The take away here is not as dim for the investor as it is for the club maker. There is no doubt that the long-putter phenomenon has helped boost sales over the past 12 months. As the economy climbs it was back towards pre-2009 levels, more people are picking up luxuries again, like golf. These two factors make Callaway an attractive company. With the impending regulation, you get the advantage of seeing the regulation coming from a mile away. If you already own Callaway, I’d say hold it, the company is well enough diversified to withstand an initial blowback from a USGA ban. If you don’t own it, wait for the ruling to come down and if the long putter is left to stand, pull the trigger, like me.
Note: As I am writing this article, Carl Petterson fired an opening round 64 (-8) at the Wyndham Championship…using a belly putter.
Cory Jez has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.