Speculation on Adidas

[Pbmercil]

You make it sound like the current/past mold designers are just kids playing in a sandbox.

That's probably a fair comparison when talking about a highly trained team of engineer's with a lot of resources. Sure, Dave D has a 30 year head start, but don't you think a big company could close that gap pretty fast?

 

[RobA]

No speculation on Adidas vs McBeth vs Innova vs PDGA, but I've always thought it would be pretty interesting if a big name company like Adidas or Nike were to get interested in disc golf. Imagine if they threw some actual money at some actual engineers to design new plastics and new molds. If they ever really wanted to, I bet they could dominate the market within a couple of years. The problem there is that the market is small, and even if they were able to own 50% of it, is that enough income to hire a team of qualified engineers and production experts?
It'd certainly be interesting to see what they'd do if they threw some real money behind the sport.

What specific advances in disc design and materials do you see with more investment?

 

[wims]

I don't want to see this. Additionally, I am confident that I am not alone in this sentiment.

I don't want to see corporate dbags in disc golf, no not really. #KeepDiscgolfWeird

 

[mark996]

My guess is it'd be a bunch of re-branded discs that still read "Innova" on the bottom. They usually rebrand their baseballs and footballs just to put their name on stuff. I doubt they'd ever get interested in some r&d in disc golf. I think Innova/Discraft/DD have pretty much r&d'd the **** outta discs anyway, at this point there's probably not going to be a huge game changer any time soon.

 

[djcadence]

What specific advances in disc design and materials do you see with more investment?

Exactly, I don't see them making discs, can't we just be happy that Adidas is taking interest in our sport. Just because they sponser a disc golfer doesn't mean they are getting into making discs. Nike has been sponsoring skateboarding for years, and they don't make skate decks, however they do make skate shoes and apparel. When Buick used to sponser Tiger, did they start making golf clubs or balls?? Here is a list of sports where someone is sponsored by Adidas https://en.m.wikipedia.org/wiki/List_of_Adidas_sponsorships ..I don't think they are going to start making Canoes or Archery equipment anytime soon! Just my two cents..

 

[ToddL]

You make it sound like the current/past mold designers are just kids playing in a sandbox.

To a certain extent, I am.
Hire a couple of AE and Materials Science PhDs and see what they come up with. Maybe they'd opt for more textured surfaces (Missilen) or contoured lower surfaces (Rask). Maybe they'd go all in on Gyro and outdo MVP on the overmold. Maybe they'd develop a plastic with the grippiness of Pro and the durability of Champion. I respect the hell out of Vibram for trying something new by using rubber instead of plastic. Maybe something along those lines.

On the other hand, it's just a dang frisbee. You can only engineer so much magic into it.

 

[RobA]

The game and equipment are fine just the way the are, imho. I don't see any practical application for discs that fly farther than they already do.

I would be happy if they can come up with a durable shoe that would last me more than 2 months.

 

[MichaelWebster]

I think the next big push in the disc golf manufacturing market will be electronics, not the bevel edge of a disc. The new PDGA specs that allow for electronics point to this. I don't see Addidas or another large brand jumping in though. The hype of 3D printers has been growing for years, but outside brands like Dremel were slow to try to break into the market.

 

[tbird888]

That's probably a fair comparison when talking about a highly trained team of engineer's with a lot of resources. Sure, Dave D has a 30 year head start, but don't you think a big company could close that gap pretty fast?

To a certain extent, I am.
Hire a couple of AE and Materials Science PhDs and see what they come up with. Maybe they'd opt for more textured surfaces (Missilen) or contoured lower surfaces (Rask). Maybe they'd go all in on Gyro and outdo MVP on the overmold. Maybe they'd develop a plastic with the grippiness of Pro and the durability of Champion. I respect the hell out of Vibram for trying something new by using rubber instead of plastic. Maybe something along those lines.

On the other hand, it's just a dang frisbee. You can only engineer so much magic into it.

I'm talking solely about molds, not plastics. My argument stems from three molds. All three have at least a decade of life to them, and all three of them are still the "standards" in their respective classes. The Aviar, the Roc, and the TeeBird. You could really include the Leopard and Eagle in that list. All great molds that not only fly great when new, but they're great as they season all the way until they're so thrashed they break.

Even if all those molds were "happy accidents" (don't really know how they were designed), does it really matter? They're brilliant and arguably still deserve the "standard" title, even as design technology has improved.

I'd like to see your theory put to the test though. I would say that they would have to be golfers themselves. They'd have to take into account the "seasoning factor". It's one thing to design a better Roc...when new. It's a whole other to really do it better.

 

[cblanch4]

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

I like that you went through the work to calculate this, but that seems pretty high. I'm going to say total revenues from both Innova and Discmania combined is $5M, thats 100,000 people/year buying 7 Innova/Discmania discs (not including discs from other manufacturers) at $7 per disc (I've never bought discs wholesale but I'm assuming that's about what it costs)

Dynamic Discs is about 3M Revenue
Latitude 64 ~4M
Westside <1M

Also I'm going to Estimate net income at about 3-4% of Revenues so there's no way they could sell anywhere close to $70M. I do agree this could be a strategic move for Adidas to test the market.

 

[KGroff25]

I like that you went through the work to calculate this, but that seems pretty high. I'm going to say total revenues from both Innova and Discmania combined is $5M, thats 100,000 people/year buying 7 Innova/Discmania discs (not including discs from other manufacturers) at $7 per disc (I've never bought discs wholesale but I'm assuming that's about what it costs)

Dynamic Discs is about 3M Revenue
Latitude 64 ~4M
Westside <1M

Also I'm going to Estimate net income at about 3-4% of Revenues so there's no way they could sell anywhere close to $70M. I do agree this could be a strategic move for Adidas to test the market.

I'm confused. It looks like OP was essentially doing a valuation. So present assets and all future cash flows from now until forever would be valued at $70 million today. Where you just tried to calculate annual revenue and net income. So you're comparing completely different metrics.

Am I missing something?

 

[cblanch4]

I'm confused. It looks like OP was essentially doing a valuation. So present assets and all future cash flows from now until forever would be valued at $70 million today. Where you just tried to calculate annual revenue and net income. So you're comparing completely different metrics.

Am I missing something?

I simply looked at revenue because contrary to popular belief this info is available (legally), it just costs money to get it. Trying to figure out a valuation using discounted cash flows/weighted average cost of capital, is nearly impossible without Financial statements, so i figured comparing revenue estimations would be pretty simple.

 

[Pbmercil]

I really like the thought process of the OP. Eventually a large player like Adidas or a Nike are going to get in the disc golf business. It is a growing sport with easy potential to make money. If you are one of those big companies who are you going to look to get in the game with? Innova is the by far the king of disc golf, and how easy would it be to buy them up and build off of their foundation. Purchasing a company like that is small potatoes for them, and there are tons of directions they could go once purchased. Obviously they could move manufacturing and make great profits on margins, or maybe they just would be happy to have their name on what Innova is already doing and just let it grow at the rate it is now.

I strongly disagree with this, and really the whole premise being discussed now that I think about it more. Adidas, or any other big company trying to crack the disc golf market, probably shouldn't be doing it by buying Innova, the number 1 brand in disc golf. Because a lot of the things that MAKE them #1 are things that have very little value to you as (hypothetical) Adidas Executive. Here are all the things Hpothetical Adidas Executive doesn't want to pay for:
1) Distribution. This is a multi billion dollar international brand. They have a global logistics division who's whole job is to distribute lots of different products all over the world as cheaply as possible. They already have the infrastructure in place to move lots of discs into retail stores, and can save a lot of money by rolling those discs in with all the other stuff they are already putting in stores. So Innova's distribution system is getting scraped regardless.
2) Manufacturing. As already discussed, manufacturing is going straight oversees regardless. Innova's manufacturing plant is getting scraped. It still has some value (property, capital equipment you can still use, ect). But is it really easier to buy the plant just to move it to China? Isn't it probably easier to just build a brand new plant wherever its going? This one is actually a toss up. It may be more cost effective to move all the heavy equipment to wherever then to just buy new stuff in situ. hard to say for sure.
3) Retail shelf space. This gets discussed a lot here. Regardless of Innova's perceived shortcomings among the competitive disc golf crowd, they have a lot of retail shelf space (comparative to all other disc golf manufactures that is, who have zero) in big box sporting goods stores all over the US. And that is a pretty big income source for them. But Adidas already has as much retail space as they could possibly want. They also have all the contacts within that industry to get their golf discs into those same stores, and could potentially even choke out Innova entirely in that market just by undercutting on price.

So three of the biggest things that make Innova #1 in disc golf are things that Hypothetical Adidas Exec couldn't care less about. Do you really want to pay fair market valuation for that company just to pay for a bunch of stuff you don't need? Wouldn't it make more sense to just buy a small brand very cheaply, invest the difference in upgrading all that brands infrastructure, and just plan on crushing Innova's market share because you're Adidas and you can probably do that?

Now, the flip side of that is there are a few things that would make life REALLY easy for Adidas. Those things are the molds that are named: Aviar, Roc, Teebird, Destroyer, and Firebird. Being the company that owns those molds is 100% guaranteed sales, and a lot of them. Regardless of how well you could clone those molds yourself (some are easier then others) just by virtue of them not having the same brand recognition they will not be as valuable. That really does count for something. But I wouldn't have the first clue as to how to put an actual $ value to the potential sales generated by those pieces of metal that make discs.

 

[beereakfast]

This thread is insanely stupid....I know you all think disc golf is huge but come on.....get out of your little dgcr cubicle for a minute and take a look at the real world...for all anyone knows Paul may get 3 pairs of free shoes and that's it.....anything else is just pure speculation

Just guessing, but i'd bet you are far closer to the truth.
I heard a radio interview a couple of weeks back with a basketball player named Draymond being interviewed by another former player about his shoe deal. Basically came down to him getting like 2 grand comped at the company store. Just product. No cash. If that's the deal for an all star in a MUCH larger sport, then all this 6 figure speculation is just a circle jerk.
More like 'Here's 2 pairs of shoes and a shirt that you HAVE to wear or we'll sue.' Not really something you would brag about the details of...

 

[lyleoross]

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?

I hate this kind of math. It's the reason we shipped so many jobs overseas. I suspect Dave and Harold are still in CA because they believe in their employees. Production in China would be much more profitable after all. How very unbusinesslike of them....

 

[lyleoross]

BTW - I'm going to agree with those that say this is stoopid. Adidas spends more in toilet paper than what Innova is worth to them. They are hedging a very small bet. I few pairs of shoes, maybe some branded clothing to see a few more shoes and shirts in the sport. It isn't that they aren't interested, it's just that the value is too low as of yet to really get their attention. If I were to hazard a guess, they have a VP who plays and shook loose a little bit of cash for funsies.

 

[Discslinger12]

regarding margin... discs are molded from Thermoplastic Elastomers and Urethanes which are about trading at $1.00/lb (and dropping due to the price of oil).... let's say they are spending $1.80/lb on premium polymer. A disc weighs about 3/8 of a pound. Raw Material cost per disc is about $.68. Commercial injection molding rates in California are around $75/hour - discs are molded at a rate of 60/hr. that's about $1.93 cost of goods per disc that wholesales for $6.

 

[ohtobediscing]

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

Do your really think PAUL MCBETH who makes six figures is going to accept 3 pairs of shoes or even $500 worth of shoes as a sponsor?

He can buy his own shoes...

McBeth "fears" no molding or corporate sponsorship like the rest of us do.