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Fore! Why golf is bad for investors' wealth

Fore! Why golf is bad for investors' wealth

Investors are betting on declining interest in golf with companies that have exposure to the sport coming under increased short-selling pressure.

Despite the pizzazz around the upcoming Ryder Cup in Scotland, research by Markit reveals that hedge funds and other short-sellers are backing the sport’s ageing customer base and narrowing margins to send share prices down further.

Golf may be seen as a something as a staple pastime in the industry with many a deal struck on the fairway, but engagement with the sport in the US has been falling. Stats from Golf Datatech show that the number of golf rounds played in America last year dropped by 5%, while participation rates among the 18-34 year old age bracket has slumped 15% over the last five years.

Sports giants hit the rough

Sector giants Puma and Adidas have both recently cited weak trading conditions in golf equipment and sportswear as a factor behind recent soft sales. Adidas’s recent profit warning saw its share price plummet. A major contributor to its declining sales was an 18% fall in its Taylor Made arm, which produces golf equipment.

‘Short interest in Adidas has surged by over a third in the wake of that news with 4.2% of the conglomerate’s shares now out on loan,’ said Markit senior analyst Simon Colvin.

Meanwhile, Puma’s shares recently hit a three –year low as the company cited lacklustre performance from its golfing products. Markit said 16% of its free float is now out on loan, double the amount last year.

Dick withdraws to plaudits

Pure-play golf company Callaway is being circled with the amount of its out on loan having doubled to 10% since the start of the year.

‘This short interest looks to have been well-timed as the firm’s shares are down by 9.5% year to date,’ Colvin said.

He pointed to Dick’s Sporting Goods’ recent decision to axe its golf business as an indicator of corporate sentiment towards the sport. The news was well received by the market.

‘This in turn has seen Dick’s shares trade sharply higher, while short sellers have closed nearly all their positions with demand to borrow shares in the company falling to a three year low,’ Colvin added.

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