Speculation on Adidas

[Discslinger12]

I think Adidas sponsoring Paul McBeth is quite interesting....

Some information about Adidas:

- Adidas golf is in 'restructuring' mode due to the overall decline in golf. They are looking for opportunities beyond the conventional golf market.
- Adidas made acquisitions in its golf group in 2008 (TaylorMade) and 2012 (Adams Golf) the latest being acquired for $70M - likely in the neighborhood of Innova's business value. An acquisition in 2016 of that size would be 'on pace' (I've conducted a bit of business in Germany, they are very methodical)
- Adidas invested/sponsored heavily 'Foot Golf'; a logical combination of 2 of their market strengths. Other than an impressive website- <www.afgl.us> participation numbers are hard to come by, likely means they are meager. If Adidas was looking to rejuvenate their golf business with this move, they could be back at the drawing board.
- Of course from our perspective, the transition for a golf course to accommodate disc golf successfully has a higher probability than foot golf because there are simply a lot more folks playing disc golf (40 years of steady growth) than foot golf... and because someone likes soccer, doesn't necessarily mean they will enjoy the game of golf with a soccer ball.

Some information about Innova:

- With all of the retail chain business - they 'own' the disc golf market by far;
- It's primary owners, Dave and Harold, are approaching retirement age; by any measure, they have built a successful market and company to the size of which a 'worn' path for further growth is either acquisition by a hedge fund or industry player, like Adidas. They are disc golfers but Innova is what it is because they are both businessmen as well.
- with molding operations in California and warehousing/packaging/stamping at Innova-East - their discs travel a bit across the country and their manufacturing costs are high due to their location. Reducing the transportation and manufacturing costs (through the scale of Adidas operations around the world) represents an opportunity to restructure and realize more cash flow from the business
- A Sponsorship of Paul McBeth will help them justify/identify the market potential for their core products - shoes and apparel.


Seems like these are all connectable dots strategically.....

Might we see 3 stripes on our Destroyers and Rocs someday? Thoughts?

 

[onemilemore]

As much as I appreciate the research, the thing being left out here is the market. Replaceable $15 discs are going to net a lot less profit than replaceable $75 shoes and various pieces of clothing. I know everyone wants disc golf to grow and be seen by bigger companies are worthy of their dollars, but I just don't see this.

 

[tbird888]

Retail price shouldn't be the only deciding factor here. It's profit margins between manufacturing cost and wholesale prices.

 

[DiscJunkie]

I do not believe that Adidas is just giving Paul a sponsorship (of unknown $$ level) randomly, or out of the kindness of their hearts. Point is, they must see some potential.
That Adidas sees some potential is beyond doubt.
The better question might be, what is their next step or next "trigger point"?

 

[dashiellx]

- with molding operations in California and warehousing/packaging/stamping at Innova-East - their discs travel a bit across the country and their manufacturing costs are high due to their location. Reducing the transportation and manufacturing costs (through the scale of Adidas operations around the world) represents an opportunity to restructure and realize more cash flow from the business

And adidas will just move manufacturing to China or Indonesia.

 

[tbird888]

And adidas will just move manufacturing to China or Indonesia.

Bingo!

 

[ZAMson]

Billions to be made in 4XL tie-dye athletic gear

 

[tbird888]

Billions to be made in 4XL tie-dye athletic gear

Multi-decades long ROI!

 

[DiscJunkie]

And adidas will just move manufacturing to China or Indonesia.

I can see it now...
$140 for the China-tooled Roc4.

 

[anhyzer24]

For what it's worth, Adidas Outdoor is the brand that sponsored Paul, not Adidas.

And as much as people want to see this as the first step in disc golf becoming mainstream, I'm pretty sure the potential that they saw in getting involved in disc golf was the potential to sell more shoes.

 

[mark996]

For what it's worth, Adidas Outdoor is the brand that sponsored Paul, not Adidas.

And as much as people want to see this as the first step in disc golf becoming mainstream, I'm pretty sure the potential that they saw in getting involved in disc golf was the potential to sell more shoes.

Adidas Outdoor is under the Adidas Group umbrella. I'm sure some big time fancy suit wearer had to sign off on the sponsorship with the company either way, that's pretty standard. And also...what multi billion dollar company doesn't sponsor someone so that they can make more money? Again, that's standard business model for sponsorship. Those who think company "X" sponsors an athlete just because they have extra product, or just want to help a brother out are wrong. Sponsorship is a 2 part relationship. "X" hooks athlete up with swag, athlete advertises for "X".

It's a step in the right direction for both Paul, Adidas, and the sport.

 

[Pbmercil]

As much as I appreciate the research, the thing being left out here is the market. Replaceable $15 discs are going to net a lot less profit than replaceable $75 shoes and various pieces of clothing. I know everyone wants disc golf to grow and be seen by bigger companies are worthy of their dollars, but I just don't see this.

For a company like addidas to get involved would really be all about what their projected volume of disc sales would look like.

It's obvious that the current pricing structure of golf discs from manufacture to wholesale to retail leaves a healthy margin to be made, at least by manufactures. If that wasn't a functional margin non of the many botique brands would have popped up in the last several years. You can't start a small business if there isn't a margin to be made. Or maybe you can start one anyway, but you aren't going to last long. A company like addidas could reasonably expect to be able to improve that margin significantly. But it's only a reasonable business strategy if they can project enough volume to justify going after the market. Is their enough volume in disc golf? Very hard to say.

I don't put a lot of stock in this thread, but it is definitely an interesting topic to discuss.

 

[Pbmercil]

Adidas Outdoor is under the Adidas Group umbrella. I'm sure some big time fancy suit wearer had to sign off on the sponsorship with the company either way, that's pretty standard. And also...what multi billion dollar company doesn't sponsor someone so that they can make more money? Again, that's standard business model for sponsorship. Those who think company "X" sponsors an athlete just because they have extra product, or just want to help a brother out are wrong. Sponsorship is a 2 part relationship. "X" hooks athlete up with swag, athlete advertises for "X".

It's a step in the right direction for both Paul, Adidas, and the sport.

The other thing is that we really have no idea what Paul's Adidas deal looks like. If someone just threw him say, $500 a year for swag at cost, it's probably not part of any larger effort to significantly break into the disc golf market. Its only reasonable to think their is a broader business initiative if they are actually investing some real $$$ in Paul.

 

[ODRB]

We'll see DG branded shoes for sure. Mark my words (I live 10 blocks from Adidas North American headquarters and know a few people who works there.... Just sayin').

 

[bhadella]

You are crazy if you think Innova's valuation would be near $70M.

 

[Pbmercil]

You are crazy if you think Innova's valuation would be near $70M.

I think anyone is crazy who thinks they have a clue what Innovas valuation would/should be. There isn't nearly enough publicly available information to hazard a reasonable guess.

 

[Puckstopper]

They'll buy up Salient. They've already got the Chinese manufacturing and ESPN tie in.

 

[superberry]

We'll see DG branded shoes for sure. Mark my words (I live 10 blocks from Adidas North American headquarters and know a few people who works there.... Just sayin').

Adidas Terrex Swift GTX Mid are already the best disc golf shoes on the market!

 

[Discslinger12]

Yes Innova's valuation is not known because they are private, but an educated guess can be made with some back of the napkin math:

Retail Chain Accounts: $20M sales (calc # of stores by average inventory and chain's published inventory turns/year)

Mom & Pop Retail: $10M (5000 courses, mom and pop near 30%, 1500 discs/year)

Online Retail: $6M (just a guess, I've owned action sports companies used a general % to mom and pop)

Core/Tournaments/Etc. (2500 pdga tournaments, 40 ams/tournament, $30 average to 'purse' innova share = 60%) $2M

Accessories (baskets $4000x200 courses/year *60% share/ plus bags, shirts,etc) $1M

That's roughly $40m in annual sales. Sport's annual growth is 15%+; $70M is 1.75X multiple on sales. Not unreasonable.

If that $40M is generating EBIDTA of $10M, 7x cash flows is on the high end, but not unreasonable in a growing market.

As a cross check - This volume breaks down to 22 molding machines, while it's been a few years since I was in the 'sanctum' out west. I believe they are molding in 2 buildings now - that much equipment is logical.

Not included in the above valuation is the commercial property owned by the company in california and north carolina. 100k sf of mfg space in rancho cucamonga alone is worth around $10M

 

[dehaas]

And adidas will just move manufacturing to China or Indonesia.

Think about how much people will complain about molding variations when it gets to this point...