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Driving for the green
[March 17, 2006]

Driving for the green

(Copley News Service Via Thomson Dialog NewsEdge)To the untrained eye, golf balls seem interchangeable. Seen one small, white ball, seen them all, right? Not quite.

Despite the ball's nearly uniform exterior, golf companies have been struggling to one-up their competitors with technological innovations and aggressive marketing campaigns. When that hasn't worked, they've even tried taking the competition to court, arguing over patents and performance claims.

While there have always been club wars, with golf companies duking it out over who has the biggest and best driver, the golf ball market is becoming increasingly competitive. With the overall golf market static in terms of growth, the lure of a consistent, high-profit business with annual sales of close to $1 billion a year has been too much for many companies to ignore.

The golf ball business has long been dominated by Titleist, which had 53 percent of the market last year. But that hasn't stopped companies like Callaway Golf Co., Nike and others from trying to build a better golf ball and topple the industry giant.

They appear to be making some inroads.

Callaway, of Carlsbad, Calif., which until recently had only a small golf ball business, has seen its annual sales increase by 150 percent since 2003. Still, with only 10.5 percent of the golf ball market in 2005, the golf company is a weak No. 2 to Titleist. Nike, the next closest competitor, has 9.1 percent of the business.

It's little wonder there's competition, as some consider the ball to be the foundation of golf. Unlike the various clubs, which are used in particular situations, a golf ball is used in every stage of the game.

"The most important piece of equipment is the golf ball," said pro golfer Phil Mickelson, one of Callaway's top spokesmen.

One reason the golf ball business is attractive is that consumers constantly have to buy new balls. Whereas players can forgo buying a new driver for several years, golf balls, which get damaged or lost on a regular basis, must be purchased regularly.

And domestic golf ball sales continue to rise, increasing by almost 6 percent last year to $536 million in golf specialty stores alone, said Tom Stine of Golf Datatech, a firm that tracks the industry. "The biggest thing is that it is a consumable," said Terry McAndrew, publisher of Web Street Golf Report.

Despite the increased competition, Titleist, for its part, is unconcerned. George Sine, vice president golf ball marketing for Acushnet, Titleist's parent company, said the business is not so much more competitive as "more cluttered ... as more golf club manufacturers have entered the golf ball business in an attempt to round out their product portfolios." Still, industry watchers say there is a shift.

At Callaway's recent investor conference, Mickelson said Callaway is in a good position to recruit pro golfers to use its balls, golfers who would have never considered the company's balls in the past.

"Historically, those players would have gone to Title - another ball maker," Mickelson said, smiling as he corrected himself midstream. More than 72 percent of all PGA Tour players rely on the Pro V1 or Pro V1x, compared with 8 percent for the nearest competitor.

Danny Colleran, owner of Polar Golf Shop in San Diego, said for years Titleist was not only the top seller but the best ball. "Now there are four or five comparable balls out there," he said, adding that Callaway, Nike and MaxFli, which is owned by Carlsbad, Calif.,-based TaylorMade, all have balls that are as good as Titleist's best-selling Pro V1 models.

But while their golf ball products have improved, Colleran said that so far people are reluctant to switch. "There is such brand loyalty," he said, adding, "People aren't willing to try something new." Considering the long history of golf, the way most of the balls are made today would be considered quite new.

At the end of the 1990s, the industry embraced a new type of golf ball construction that revolutionized the game, as well as the business. Previously, the golf ball was made from a wound core, which consisted of a solid or liquid core surrounded by rubber thread. That construction provided less distance but more control for tour professionals. The new construction, with its solid core and thin soft coating, provides professionals and amateurs with greater distance and more control of the ball.

"In the last five or six years, we've seen the greatest improvement in innovation in the golf ball," McAndrew said.

While Titleist wasn't the first company to introduce a solid core ball, it has been the most successful. In 2000, the company launched its Pro V1 ball and took the industry by storm. Since its introduction, the Pro V1 has become the best-selling golf ball in history, grossing an estimated $1 billion in sales.

Callaway, for its part, has long been known mostly as a golf club maker. But the company decided to try to change that when it bought the beleaguered Top Flite out of bankruptcy. The reason for the purchase was twofold, said Mike Yagley, Callaway's vice president of golf product management. First, it allowed Callaway to ramp up its ball production using Top-Flite's state-of-the-art ball production facility. Second, it gave Callaway an extended patent portfolio to improve its ball performance.

That patent portfolio is at the center of a legal dispute between Callaway and Acushnet, Titleist's parent company. Recently, Callaway filed suit, saying Titleist's Pro V1 balls had infringed on four patents that Callaway now had by way of its acquisition of Top Flite.

Callaway said Acushnet has now asked the U.S. Patent and Trademark Office to re-examine the patents - essentially requesting do-over on the four golf ball patents in question, even though the facts hadn't changed. Both sides have refused to comment further on the matter.

Legal questions aside, golf ball innovation - along with improved club technology and more athletic players - have helped increase the average distance the ball travels. A few years ago, the only player who averaged 300 yards in driving distance was John Daly, known for his grip-it-and-rip-it style. In 2004, there were as many as 15 players who were able to send the ball flying more than 300 yards on average.

That shift has caused some in the industry to question whether balls should be reined in or whether tour players should use a different kind of ball. The United States Golf Association is front and center over that debate as it regulates the equipment used in golf, both on an amateur and professional level. If a ball or a club doesn't get the USGA's seal of approval, it all but dooms its chances with consumers because the "non-conforming" piece of equipment can't be used by players trying to qualify for a handicap.

Last year, the USGA asked ball manufacturers to provide them with balls that traveled 5 percent to 8 percent less distance. Marty Parks, senior director of communications for the USGA, said the reason for that request was that the USGA is conducting studies to understand how today's golf ball works in order to be prepared in case the distance issue becomes a problem it wants to address in the future.

"When that day comes that we think distance has just gone too far, we want to be prepared," he said.

Golf ball makers are uniform in their belief that the current rules, which have been in place since 1976, should not be rolled back. Among the rules is the requirement that the maximum distance a ball can travel in USGA testing is 320 yards.

"We do believe that any potential rule changes that would contemplate a distance rollback, bifurcation of the rules or a tournament ball are changes that go to the core of the game and its long-held traditions," said Joe Nauman, senior vice president and general counsel for Acushnet. "Any such changes could disrupt and alter the game in very fundamental and negative ways."

Any rollback would make it difficult for golf ball makers who spend big bucks on research and development to improve their products, said James Hardiman, an analyst who covers Callaway for FTN Midwest Research. "That's the big fear," Hardiman said. "It's not only will the USGA limit future technological advances but whether they'll roll back the standards of today."

Even now, there is a real question about how much better balls can be made within the current USGA specifications. But manufacturers like Callaway and Titleist insist that they are continually working on improvements.

Callaway's Yagley said the company's HX balls use a hexagonal dimple pattern as opposed to a more conventional round pattern to provide golfers with better aerodynamics as a way to distinguish itself.

"They'll see our HX golf balls stay in the air a little bit longer," he said. Still, golf ball makers also admit that the sea change seen with the switch from wound core to solid core balls will probably not occur again anytime soon.

"With respect to innovation head room, we believe that the limits placed on golf ball performance by physics and current regulations leave very little room for additional distance gains," said Acushnet's Nauman.

That fact may make it harder for ball makers to differentiate their products, especially for those trying to challenge Titleist. "The big player in the golf ball business is clearly Titleist and it remains to be seen if anyone can put a dent in their business," McAndrew said.

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