Adams Golf, Inc.

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Adams Golf, Inc.

300 Delaware Avenue, Suite 572
Wilmington, Delaware 19801
U.S.A.
Telephone: (302) 427-5892
Fax: (972) 673-9200
Web site: http://www.adamsgolf.com

Public Company
Incorporated: 1987
Employees: 243
Sales: $54.00 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: ADGO
NAIC: 33992 Sporting and Athletic Goods Manufacturing

Adams Golf, Inc. designs, manufactures, and markets golf clubs domestically and internationally. Adams Golf also operates a custom-fitting operation comprising more than 300 golf professionals who are certified to custom fit clubs through a network of more than 100 accounts. Nearly all of the company’s revenues are derived from the sale of golf clubs, primarily from Adams Golf’s signature line of Tight Lies fairway woods. The company also sells Tight Lies drivers, SC Series Titanium drivers, and Faldo Series wedges. World-recognized professional golfers Nick Faldo and Tom Watson represent the Adams Golf brand. Internationally, the company sells its product line primarily in the United Kingdom, Japan, and Canada.

Origins

A one-time field engineer for Corning Glass, Barney Adams founded Adams Golf. After leaving Corning Glass, Adams earned a reputation in turnaround management, spending much of the 1970s and the early 1980s in northern California’s Silicon Valley, where he helped troubled companies regain their footing. Eventually, Adams’ experience with helping others manage their companies fed his desire to start his own company. One passion dovetailed with another in 1987, when he was able to combine his entrepreneurial inclinations and his love for the game of golf. Adams convinced six investors to financially support his dream, enabling him to invest $50,000 in a defunct golf club business named Dave Pelz Golf. Located in Abilene, Texas, the acquired company was immediately given Adams’ name and began operating as a component supplier and contract manufacturer.

After moving the company to Richardson, Texas, in 1991, Adams altered its business approach. In 1992, he established Adams Golf’s custom-fitting operation. The change shaped the company into a tailor-made supplier of golf clubs. Variables such as the length and stiffness of the club shaft, the placement of the head relative to the shaft, and the club’s weight distribution were each adjusted to conform to the unique characteristics of a particular individual, taking into account the golfer’s physical attributes and the peculiarity of his or her swing. The company started the custom-fitting process by measuring the customer to determine shaft length and head placement. Next, the customer used ten different club sets to establish which type of clubs worked best, a trial-and-error analysis that typically revealed one club set to yield superior performance results. The chosen clubs were then used as the foundation for the remainder of the fitting process. “We call it harmonic club fitting,” Adams explained in a May 13, 1994 interview with Dallas Business Journal.

Adams began selling his custom-designed clubs at Hank Haney Golf Ranch, a McKinney, Texas golf resort run by Hank Haney, a highly regarded professional instructor. The business was successful, attracting a handful of customers whose satisfaction spurred Adams Golf’s modest growth. As word passed of the company’s custom-fitting operation from one golfer to another, Adams earned a solid reputation within a small circle of the golfing community, but he had no illusions about his company’s stature within the multi-billion-dollar golf equipment industry. “We’re not a big success,” Adams conceded to the Dallas Business Journal on May 13, 1994. “We’re embryonic,” he added. Within the national landscape of high-profile, high-finance golf equipment corporations, Adams Golf was a nonentity. In 1994, the company was hoping to collect $500,000 in sales, putting Adams Golf in a different league than the industry’s leaders, whose annual revenue totals were 1,000 times greater.

As Adams Golf entered the mid-1990s, Adams was content with his company remaining a diminutive yet respected participant in the golf equipment market. The resources at his disposal left no genuine hope for much else: Adams Golf was supported primarily by word-of-mouth advertising, with the company’s capital devoted to designing its golf clubs rather than to funding promotional activities. The company also lacked the resources for a major sponsorship deal with a professional golfer, a marketing strategy embraced by all premier golf equipment companies. Between 30 and 40 golfers on the professional tour used Adams Golf’s clubs by 1994, but none were paid to do so and, consequently, their choice of clubs could not be used to promote Adams’ company. Partly out of choice and partly because of the financial realities he faced, Adams centered his focus on a limited customer base, hoping that his attention to quality and the word-of-mouth advertising it promoted would one day lift his company out of obscurity.

1995 Debut of Tight Lies

In 1994 Adams’ long-term objectives were to sell between 2,000 and 2,500 clubs a year and to increase the company’s distribution network to include as many as 125 golf outlets. His expectations soon grew much grander. In the fall of 1995, Adams Golf introduced the invention of its founder, a fairway wood called Tight Lies. The Tight Lies fairway wood featured an upright trapezoidal head shape—“upside down” in relation to the shape of conventional club heads—a shallow face, and a low center of gravity. These attributes made the club an ideal replacement for shots that typically required a “long iron,” an iron club with a flattened face designed to hit longer distances. Long iron shots were the bane of many golfers, particularly for amateurs who found it difficult to control the flight of a ball hit with a long iron. As had been his practice, Adams relied on word of mouth to support the sales of his new club, but he soon realized that he had a revolutionary golf club on his hands. Adams stepped up his marketing efforts, placing advertisements in newspapers and magazines. He used telemarketing. He paid for a 30-minute infomercial, using every medium of advertising he could think of. “It was a once-in-a-lifetime product,” Hank Haney explained in a June 4, 1998 Knight-Ridder/Tribune Business News article, adding “It’s so far superior to anything that was out there at the time.”

After the introduction of the Tight Lies fairway wood and the groundswell of attention it attracted, the years of anonymity were over for Adams Golf. In the golf equipment industry, product innovation served as the overriding catalyst for growth. Any new club or ball perceived by the public as having the capability to take strokes off a golf score created an intense wave of curiosity, which usually translated into an equally powerful desire to buy the product. Innovation had helped catapult start-up golf manufacturers into the industry’s elite. Adams, who had played the game for more than 40 years, was well aware of the massive fortunes a technological breakthrough could deliver. Whether his company’s small stature was preferred or not, Adams found the potential for growth irresistible—the “once-in-a-lifetime” opportunity that Haney had referred to.

What emerged after the introduction of the original Tight Lies was a company clamoring to develop the marketing, administrative, and manufacturing abilities to support the swelling popularity of its new fairway wood. The introduction of the product helped the company surpass the $l-million-in-sales mark in 1995. From there, the company’s sales growth occurred at a vigorous pace, entirely because of the golfing public’s fascination with Tight Lies. As the movement behind Adams Golf’s signature product intensified and the company’s marketing efforts matured, the market reaction to the fairway wood began to become evident. Sales shot up to $3.5 million in 1996 and in 1997, after the Tight Lies infomercial aired, sales exploded to $36.7 million. Adams, who had 18 employees the year Tight Lies was introduced, found himself with a workforce of 250 three years later. Although the company continued to pale against competitors such as Callaway Golf Co., which collected nearly $850 million in annual sales, Adams faced a point in the company’s development where he had to shape Adams Golf into the type of company that could compete against the likes of Callaway Golf.

Late 1990s Growth

As Adams faced the daunting task of taking on the industry’s stalwart concerns, he could at least take solace in launching such a bid in a favorable economic climate. Driven largely by innovations, the golf equipment market grew at a 13 percent annual rate between 1993 and 1998, developing into a business worth $2.7 billion in revenue each year. Clubs made of titanium, golf balls proven to fly longer—anything perceived to make a difference over 18 holes of golf—found receptive consumers whose spending habits were invigorated by a robust economy. However, to consider Adams Golf as a legitimate rival to the industry’s largest companies required profound changes to the company’s way of doing business.

Company Perspectives:

From the start, Adams has stood for highly innovative designs and precision manufacturing techniques that make a real performance difference for the golfer. Our objective is always to improve ball flight which results in lower scores and more enjoyment of the game. Our heritage in custom fitting gives us a unique perspective on what it takes to make your game the best it can be. Today with six-time Majors champion Nick Faldo and eight-time Majors champion Tom Watson, we continue to take golf club design and manufacturing to a new level. Enjoy the advances we have in store for you, and as always, enjoy the game.

To successfully complete the enormous evolutionary step from a regional concern to one of the industry’s leading companies, Adams Golf needed to address its approach internationally and to assume a more aggressive position domestically. In its new posture, the company would need to take on the trappings of a typical golf equipment heavyweight. “If you’re not prepared to play in their game, you’re kidding yourself,” Adams acknowledged in his June 4, 1998 interview with Knight-Ridder/Tribune Business News. Internationally, the company had yet to eclipse $1 million in sales by 1997, but the push to drive up sales abroad was on. During the first six months of 1998, the company reached agreements with 33 distributors whose territory encompassed 39 countries. Touting itself as a major golf equipment company also required a sponsorship deal with a high-profile touring professional, the financial reality of which had long eluded the company and still—in 1998—seemed to be beyond Adams Golf’s financial ability. In May 1998, however, the company scored a coup of sorts, forming what it called a lifetime relationship with Nick Faldo.

As far as professional golfers, Adams would have been hard-pressed to affiliate his company with a more renowned figure than Nick Faldo. Faldo had won scores of U.S. and international championships during his career, including three Masters Tournaments and three British Open Championships, ranking as the world’s best golfer for a one-and-a-half-year period between 1993 and 1994. Faldo’s long-term affiliation with the company represented an enormous boon to the Adams Golf brand name, a deal that was made possible by giving Faldo an ownership stake in the company, royalty payments, and hiring him as an active participant in the future development of the company’s product line. In August 1999, Adams Golf gained another high-profile professional emissary when it signed a five-year sponsorship deal with Tom Watson. Winner of five British Open Championships, two Masters Tournaments, and a U.S. Open Championship, Watson, like Faldo, was expected to be actively involved in product development.

Although animated revenue growth and the association of an internationally prominent professional with his company were bright spots in the company’s transformation, Adams also suffered the low points of his company’s accelerated growth curve. Profits were essentially nonexistent throughout the 1990s, casting a pall on the company’s otherwise strident success during the latter half of the decade. In July 1998, the company’s lackluster profitability became an evident weakness when Adams converted to public ownership. Adams Golf’s initial public offering of stock, however, was deemed necessary, raising nearly $100 million to help the company develop the infrastructure and the products to compete against much larger rivals.

Adams Golf concluded the 1990s by broadening its product line and strengthening its international operations. In January 1999, the company countered criticism that it was a one-product company by introducing SC Series Titanium drivers and Faldo Series wedges, the first product line designed with the input of Nick Faldo. In a bid to leverage the popularity of its mainstay Tight Lies fairway woods, Adams Golf released the Tight Lies Tour line and the Tight Lies 2 line of fairway woods in June and October, respectively. The Tight Lies family of clubs was extended further with the introduction of the Tight Lies 2 driver in January 2000, incorporating the same technology used in the fairway woods. Against the backdrop of the product debuts, the company assumed greater control over the prosecution of its international business. In early 1999, Adams Golf acquired the golf club distribution business of its exclusive distributor in the United Kingdom, a company called Dimensions in Sport, Ltd.. The acquisition was renamed Adams Golf U.K., Ltd. and organized as a wholly owned subsidiary of Adams Golf. A similar desire for greater overseas control prompted the company to sever its relationship with its distributor in Asia. Adams Golf Japan, Inc. was formed in early 2000 as a subsidiary to manage the activities formerly conducted by the independent distributor.

As Adams Golf prepared for the future, much remained to be determined concerning the company’s ability to effectively compete against much larger foes. The extension of the company’s product line had reduced its dependence on the Tight Lies fairway woods, which accounted for 96 percent of sales in 1998. In 1999, fairway woods generated 63 percent of sales, with drivers—previously a nonexistent product category— accounting for 32 percent of sales. Nevertheless, Adams Golf felt the brunt of competitive pressures in 1999, as a lower volume of fairway wood sales contributed to an annual decline in overall sales from $84.6 million to $54 million, one year after the company had registered a 131 percent increase in sales. “It’s been whirlwind, it’s been roller-coaster, it’s been tiring,” Adams remarked in a January 25, 1999 interview with Brand-week. “It took me 11 years to become an overnight success,” he continued. “In the last year, I’ve aged another 11 years.” To successfully survive in the upper tier of the golf equipment market, Adams needed to replicate the success he recorded with Tight Lies in other product categories. The objective required substantial resources and the art of innovation, the prerequisites of Adams Golf’s future success.

Principal Subsidiaries

Adams Golf, Ltd.; Adams Golf Direct Response, Ltd.; Adams Golf Holding Corp.; Adams Golf GP Corp.; Adams Golf Management Corp.; Adams Golf RAC Corp.; Adams Golf IP, L.P.; Adams Golf Foreign Sales Corporation (Barbados); Adams Golf U.K., Ltd.; Adams Golf Japan, Inc.

Principal Competitors

Taylor Made Golf Company, Inc.; Fortuna Brands, Inc.; Callaway Golf Company.

Key Dates:

1987:: Barney Adams acquires Dave Pelz Golf.
1992:: Company establishes a custom-fitting operation.
1995:: Tight Lies fairway wood is released, triggering explosive growth.
1998:: Professional golfer, Nick Faldo, joins the company.
1999:: New product introductions and a sponsorship deal with Tom Watson highlight the year.
2000:: Adams Golf Japan, Inc. is formed as a subsidiary to oversee operations in Asia.