Business model in terminal decline? Try a round of golf

A dilemma eventually befalls every mediocre golfer. Is it worth investing in years of practice and instruction just to shave a few strokes off your handicap? Cable company Versant Media knows the feeling. The owner of CNBC just spent $530mn on Full Swing, a maker of golf simulators, in the hope of getting its business back on the fairway.

Versant’s problem is that its existing business — traditional “linear” TV that follows a fixed schedule — is terminally challenged by the rise of streaming. The company was spun out of Comcast earlier this year, to remove the pall of legacy pay-TV channels from its broadband internet service, NBCUniversal network and movie studio.

While $530mn is a big cheque for a company with an enterprise value of $7bn, Versant can claim existing affinity for the links. It owns the Golf Channel, as well as tee-time booking system GolfNow and a membership-based community called GolfPass. Full Swing gets the company an inch closer to being a lifestyle brand rather than just a cable dinosaur.

Its executives claim the company can eventually derive most of its revenue from “platforms” — or businesses such as selling golf bookings and software. Versant owns Fandango, the movie ticket seller that is now also offering film screenings and back-office technology to cinemas.

As an investment niche, or a theme for a “platform” company, golf is pretty promising. Traditional green-grass golf grew sharply during the pandemic. But alternatives such as gamified driving ranges and indoor simulators have grown too. Some 19mn Americans now play off-course golf, twice 2019’s levels, according to data from the National Golf Foundation and Versant’s own market research. Shares in Acushnet, the maker of Titleist equipment, have more than doubled in the past five years.

But ask any duffer, as novice golfers are known, and they will attest that progress comes slowly. Investors might prefer Versant to simply stick to dividends and buybacks with its reasonable, if melting, cash flows. The company threw off $1.5bn of free cash last year, although that figure is declining by at least a tenth each year.

After all, golf and cable are very different businesses. Full Swing, formerly owned by private equity, is likely to bring only modest revenue relative to its new owner’s. Buying it looks like a bid to win a higher valuation from investors who shun companies with less than zero growth.

Versant itself may find a more fitting home under private equity, given its gloomy prospects but decent profitability. Should it instead persist with its platform plans, it is fighting a stiff wind. Golfing legend Ben Hogan once said the secrets of golf lie “in the dirt” — a way of saying that struggle is its own reward. In that regard, golf and investing are not alike.

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