Hoyt McGarity on the State of Golf

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0:42Welcome back to The Deal. I'm Jason Kelly alongside Alex Rodriguez. Coming up on the show, Hoyt McGarrity, the president and CEO of 8AM Golf. And, you know, Alex, you and I are both golfers of varying degrees of skill. I am substantially at a disadvantage having not been a professional athlete myself. I believe you can probably out drive me by somewhere between 100 to 400 yards. But we love the game. And I think we've both been super interested in just how much it's booming right now. I just feel like I see golf everywhere, right? You're 100 % right. And I may out drive you. You're going to outscore me every time.

1:21You play a lot more than I am. I'm fascinated. I mean, look, what I took away from the interview is how passionate he is about golf. The fact that he grew up in the Hamptons, he couldn't afford to get into these fancy clubs. So what did he do? He was a caddy. So he kind of reverse engineered his passion. And he's been around golf his whole life. And now they're buying companies that are, you know, very helpful and around the sport of golf, which is the moat. And they're buying companies at cash flow because they like cash flow. Then they grab that cash flow and keep scaling their business. Very interesting model.

1:55Yeah, it is super interesting because I feel like, you know, we talk so much to, you know, team owners and athletes and things like that. I feel like this is a really inside look at how you build a business around a sport that has been lumpy over the years, right? I mean, you think about 10 years ago, I think people would say golf was in terminal decline. I wasn't playing, you know. It was not of interest to a lot of people. And I think most notably, it was not of interest to my sons who are now avowed like golf sickos in their 20s. They consume the content. And that's really what Hoyt is going after.

2:32So fascinating to get some time with him. Coming up, Hoyt McGarrity, president and CEO of 8AM Golf.

2:50Welcome back to The Deal. I'm Jason Kelly alongside Alex Rodriguez. So happy to have with us Hoyt McGarrity. He's a buddy. And we were all together sort of weirdly, you know, because as things happen, the first time we were all together, we're not together. We're only together virtually here. We were together in real life in Doha last year for a big Sportico conference with the Qataris. So it was fun to get to know each other a little bit. Hoyt, you are joining us from St. Andrews because, of course, and you're for those who are only listening to us. Hoyt has the sickest real background, much better than than either of ours.

3:26So, Hoyt, first of all, welcome to the show. Second of all, what the heck are you doing there other than being an awesome golfer? Yeah, well, first, thank you for having me, both of you. Yeah, actually, I just flew into St. Andrews this morning from Nashville, and I'm here visiting one of our hospitality concepts, T Squared Social, with Tiger and Justin Timberlake. I saw it under construction. I've not seen the finished product, so today was a good day to go see where we're at. We've got a winter under our belt coming into a nice summer here, so it's good to see it in full action. Exactly. We were talking to you.

3:58It's like 7 o 'clock at night, and you probably could go play 36 holes after this if you wanted to. It's a good time to be in Scotland. Yes, absolutely. So Hoyt, help us, our audience, and Jason and I understand, what is 8 a.m. in 2019, 2018, when you guys opened this thing up? Was it born to be basically like a holding company? How many companies do you have in that portfolio? Walk us through that. I mean, today we have about 15 different golf companies. But in 2018, 19, we probably were around six. And we didn't really have a holding company. We owned them individually and we thought, okay, we need to put these and house them somewhere.

4:37And we formed the holding company called 8am golf. And since then we've been collecting brands in the sport that are, you know, best in class. I think we're in every facet of the game, right? We've invested in everything from hospitality to equipment, to media, to events, to travel. I mean, you name it. We're pretty much in everything except for apparel. We sell a lot of apparel to our e-coms, but we don't own an apparel company. I think our closest thing to that might be Painter now that we just bought a position into Painter Golf Shoes, which will go into apparel. So that was kind of our way of getting into that one.

5:10But yeah, we've kind of thought, you know, once you had one or two, three investments, it's best to surround them with other great investments. And even if they're in different areas, they all can feed off one another. And I think we've done a really good job of creating this, maybe one of the first golf holding companies. I know people that own particular assets, but they might not own 15 different ones. And we've also are big operators of our business. Let's say of the 11 of the 15, we operate fully and we own 100 % of. And then the ones we don't are more on the hospitality side and different things because we definitely needed partners.

5:46And it's good to know when you need partners. So let's stay on that theme right there. So you have now around 15 companies. You can go anywhere in the world of golf. How do you decide what type of business, hospitality, more connected to golf? And then once you source those deals, how do you source them? And then how do you capitalize them? Yeah, I mean, it's a good question. I would say I start with how we source the deals. I mean, when we first, we're pretty heavy in the equipment space, maybe because that was where my passion lies, right? So we have Mira Golf. We have TrueSpec Golf. We have Fairway Jockey.

6:21We have McLaren Golf. But we also noticed that more of our brands that were in the premium side seem to hold steady and grow consistently year over year. When I say that, some of our larger brands that speak to millions of people, I feel like there's a little bit more ebbs and flows there in the business model versus the premium side. So when we go out there and look at it, we try to find these unique best in class products that maybe sit a bit more expensive or a bit above the rest. And we're pretty particular on that. And how we source them is that, honestly, I don't think anyone's looked at more golf companies than us in the last 10 years.

6:59I mean, I spend my days from a venture startup with nothing to a massive multi-billion dollar company. We're looking at it and we get the phone call. So you can't do every deal, right? And, you know, we're not a fund. And so we've been attempted to go down that path. We've been asked to go down that path. I think we built credibility in the space to maybe go to the next step there and raise some capital. But no, we just kind of field them. We were very particular on the CEOs, the operating side. Do we gel with them? Do they fit in? And, you know, we try to surround our current businesses with stronger businesses.

7:37Right. And and and I think once you get consistency and synergies between them all, you start to see the effects of that. And I feel like we're seeing that on a daily basis now. And to Alex's point, are these mostly, these are cash deals? Like, how do you capitalize them generally? mostly cash deals i mean you would say like i said we own 11 of them we own 100 of the deal so we would have purchased them right but we're also big believers in the management so even if we purchase it we tend to give back to the ceo and the you know the whole corporate structure of that team because we don't want to be they're the ones that got it to a place so you'd want to make sure that they have upside and participating we're pretty pretty hands-on i wouldn't say we're a board or a private equity that like pops in, cuts a lot of costs and then sells it.

8:23We very rarely sell a business. We like the operating cashflow. And I think we've done a really good job of creating consistent cashflow across all the entities. And when you add them together, you start to see that and you can have the ability to do more with them. We did sell a business this last year in GolfLogix. We also know, you know, everything's for sale if you think about it for the right price. And if it's time to exit and for us, it was a good time to exit that business. So we kind of sent a little message that we do sell things too. It just wasn't at an investment banker level. It was really just me speaking to the group and saying, hey, this is a good fit for you.

9:00This is a good fit for us. The price was right. Why do I need an investment banker? And we kind of struck the deal from there. But yeah, I mean, I would say that's probably the best way to explain it. We are one source of capital, right? And now the companies are producing their own cash flow that we're using that cash flow to buy other companies. And that's kind of how we've operated to this date. Now, like I said, we've been approached every which way. I think 8am has created its own weird brand. It was supposed to not be known. You know, it's just a holding company. And now it's like, hey, maybe we have our own brand with these events we throw and different things that people are willing to trust us or to offer up capital into future investments.

9:43If that's an SPV or if that's us creating a fund, right, we're kind of thinking through all that right now. And so, Hoyt, you know, you mentioned that you got to St. Andrews via Nashville, but those two are not necessarily always, you know, places that are in sync or mentioned in the same breath. And yet it makes a lot of sense for you. You guys opened a new golf course down there, sort of long in the making, long anticipated. Tell us about that, because it's a notable moment. certainly for your company and for your partnership with Justin Tipperlake. But also, I think for for golf, it says something about sort of where we are now.

10:21So walk us through that. Yeah, you know, honestly, I never thought we were going to own a golf course or build one from scratch. Right. I mean, that was like the dream. If you think about it from growing up in the golf business, I never thought we would get to. I mean, it's my dream. It's Alex's dream, too. I bet. Like just own a golf course. Yeah. Yeah. And last week was our first member member. And we've only been open just over a month. And I was sitting there. I'm like, wow, I can't believe this actually happened. So this goes back to 21. We've been in the design business. We knew a lot about golf course architecture.

10:51We knew a lot about golf. And Nashville was a little starved for golf in general. And then Justin's connections to Tennessee, we kind of found this incredible property off market in 2001 Memorial Day. It was when I was there. and now we opened up and it's it's a you know it's a private club we have about 140 ish members at this moment mostly national based I would say a hundred of our members are from not Tennessee or Nashville and we're growing and honestly we're only a month in and it's pretty successful to get to that number I don't know where we'll cap it out but we kind of like our number or 150, 160.

11:33I mean, most clubs get to around 300, but I think you do it the right way. And we're not in a rush for it. And Hoy, when you think about building a golf course, that's quite an ambitious, time-consuming resources. Are you thinking about it from the prism of like, this is just a great business on its own outside of 8 a.m. or that throws off great cashflow and can grow over time? Or is it a real estate play? Or is it just all of the above, where it's also very complimentary to the other portfolio companies? I think it was more complimentary. I mean, we didn't get into it. We have probably 180 acres extra in real estate.

12:09Don't get us wrong. Like we did buy extra acres that doesn't sit on the course. So it wouldn't be your traditional house on a golf course, right? But we do within a gate have that ability or we'll build more golf. But honestly, I would hate to say it was a nonprofit because we don't want to lose money doing things. But we knew our numbers really well to be able to say, hey, we can get this thing and get our money back and then use it for all the other companies we have and events that we have. So we thought it was just a great thing. It was risky. I mean, let's be honest. Golf courses are not cheap.

12:43OK, there's nothing about acquiring land, construction, clubhouses, dealing with the city, states. I mean, nothing about it is easy. so yeah it was a bit of a headache but it was more of a passion play but ultimately i think the real estate that if we do decide to trigger it it pays for it multiple times over but we don't know what we'll do i mean it's just nice to have that and i think we acquired that extra land after the initial wave um which was a good investment and it kind of protects it and it protects the neighborhood as well because it was growing pretty fast um but yeah i think it was more just because we're not going anywhere and we'll keep growing and we have all these incredible brands.

13:26And we started realizing we're throwing events around the world or at different places and paying all these prices. We're like, we'll just start them in Nashville, right? It made more sense. There's nothing wrong. We're only 12 minutes from downtown. It's unbelievable. Like we can't be closer. Yeah. And Nashville, as you know, is growing like crazy and people love going there. And we're just fortunate to have this incredible property that's so close to downtown.

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14:33Hoyt, it's such a fascinating moment for the business of golf. And, you know, Alex and I talk about it all the time. We talk about playing. We, you know, talk about our game. But we also, you know, talk about the fact that, you know, my 21-year-old son, my 23-year-old son, like, they love golf, too. And they love it. They love to play it. But their entrance into it and experience with it is totally different. The demos around golf right now are fascinating to me. Tell me about the prisms through which you look at that and this sort of like youth boom that seems to be happening, especially in that kind of 20-something demographic.

15:13I mean, look, golf is booming. And I was a little nervous because it booms so much in 2021. I mean, it got out of control there for a bit. And for even looking at companies and the valuations and everyone was entering the sports, getting a little excited and I think it tapered off. But it's kind of back again in a weird way. I'm looking at all of our companies are up and I'm sitting here going to myself like, all right, I thought we would have tapered out a bit, but we're still seeing growth. You know, some are up 5 percent, some up 25 percent. So it's good to see that there's in all areas of the sport, we're up.

15:45um i think with the younger generation what you're seeing now is like i'm looking at today i was in t squared social and i'm just looking around it's lunchtime inst andrews scotland there's not much going on and we've got kids in there from the university hitting golf balls in the simulators they're playing darts they're just around the sport having fun with it in a different way which something that maybe i wouldn't have done when i was a kid we didn't even have simulated golf right too much. And this, this boom and simulated golf is massive and it's bringing in a whole new wave. And it's a lot less threatening to hit a golf ball 10 feet into a screen than chase it around a golf course, especially as a beginner.

16:24Um, and I see this, I travel a lot around the world and simulated golf, Korea, like golf's on in Korea is one of the largest golf companies in the world. And it's literally just in Korea, right? It has more simulator. They have more locations in Starbucks in Korea for simulators. And it's a massive multi-billion dollar company and it's all indoor golf. And I think you're seeing that boom. It's always been in Asia and now you're seeing it come here. And I think it's generating this interest level of this younger generation. Obviously Topgolf, Putt Shack, Puttery, Swingers, Popstroke, you know, you have a million miniature golf concepts that have come to the game and you have the indoor golf that's come to the game.

17:06and the areas that we invested were was the indoor golf but tiger when we did t squared they didn't want it to be just golf they wanted it we have darts and duck pin bowling and golf golf was just the common thing that they both loved obviously one was a little better at it than the other but the other was still good and and so that was like the thing that brought everyone together and um i hope that keeps going i have to say it's a lot of screen golf it's not the pga tour or live or anything that that's all been a lot more drama in the last couple years hopefully tapering out but these this puttery all this miniature golf it kind of gets you hooked and we all you you guys play golf so it's like once you get going then you're like oh i want to go to the grass with it and then you become addicted to it totally i mean i am a full-on golf sicko as alex knows i mean alex what i've i don't know if we've ever really talked about this on on air but like what's your relationship with i mean you didn't play as a kid you started playing as an adult like how did you come to it yeah so when i was in seattle in my as a teenager in early 20s i would see griffy and a lot of our champion a lot of our pitchers would play golf and i was like hey i'm getting a little fomo here like i want to play a little golf and i started playing and my routine for 15 years uh was this i would get back home sometime in october november and i would play like five days a week, I would take my handicap down to about 10 or 13.

18:37And then I will go back and redo it again. I'll start at 17 and go back. And by the time I had to go to spring training, I can never break 10. And that got a little frustrating because I had to fight my baseball swing. But to Hoyt's point, like I just fell in love with the game and I've been in love ever since. Yeah. And so, I mean, Hoyt, it's interesting. You mentioned the vibes around golf right now. you kind of see the tension a little bit, right? You know, you sort of see the old heads, as it were, who, you know, were very much the tuck in your shirt, wear a belt, no music. And then you have a bunch of bros, you know, screaming around in their golf carts, playing loud music.

19:14How do you sort of serve both simultaneously from a growing the 8 a.m. golf portfolio perspective? Yeah, I mean, that's a good point because there's very different golf courses and it's come along way. I mean, look, I was never a member at a golf course. I grew up in the Hamptons and I caddied at every golf course just to have access to a golf course. There wasn't even a public, well, it was a par three course, but there wasn't really a public golf course I could play within 40 minutes of where I lived, which made it very difficult. So my only access was through Maid Stones and Shinnecocks and Nationals, which are unbelievable golf courses, but provide a particular experience, right?

19:52And that was, it wasn't very accessible, right? I mean, unless you had the money and you or a member or you had the pull to get in, what do you do? Why would you go play golf without simulated golf, et cetera? As it getting younger, I just think it's becoming culturally more laid back. You see it from the apparel lines that are out there, from Malibu and all these new things that are coming. We're seeing it in Painter right now. This more of a lifestyle, more fun, more of a hang environment. And I think we can only translate it to our companies or not necessarily all that. But we do notice from like golf.com and golf magazine, all of the YouTube, all of the content is a lot more driven to a younger generation and fun.

20:34We still have the content for the generation. We still have a magazine, right, that caters to a particular group. But we know the future was in this new wave and making it fun. At Bounty Club, it was interesting. Where do we lie, right? And we had to decide as a club. were like hey and you it wasn't too hard to decide with justin nashville and thinking okay well we we wanted world-class championship golf course but we want it to be fun and the one thing justin always preached to us was listen you can have a great golf course but a terrible hang and you got a great golf course because you can have an okay golf course but have an incredible hang and your people they will come there be there have fun with it and if you hit both you've done really well right special place and so we actually that was that struck and i was like you know what whisper rocks of the world like all these great clubs they have a great hang first um so we we focus on what we can control and that was the hang i think it's the only one only thing you can control i want to just go back and double click on one quick question when you look at uh is there certain metrics that you look when you buy a business obviously has to be related with golf some sort.

21:45When you think about it, does it have to have like at least five or ten million dollars revenue? Are you thinking about purchasing revenue multiples or EBITDA multiples? And is it something you won't pay if it's over 10 times multiple of EBITDA? Would you say that's too rich for us? Or is it dependent on the deal and the growth and everything else in between? Well, our chairman, Howard Milstein, is pretty strict on particular things. We've always been much more of a cash flowing. We don't mind if it, you know, first of all, you know, some of it's part of a bank. So you're like, always love cash flow and what you can lend against, et cetera, and convertible notes and that type of structure.

22:24But you can be making$100 ,000 EBITDA. You can be making$5 million EBITDA. We just knew we could add to it if we were able to buy it. So yes, unfortunately, we don't have a venture arm, really. We probably should. We're just not structured for it. So we pass on a lot of deals. We might flag them and say, hey, keep an eye on these deals because we liked this CEO, but it wasn't for us. So we're much more looking for businesses that are existing cash flow, best in class brands of any size. I would say our sweet spots. Yeah, if you can be in the range from two to 10 million EBITDA, we love that because we know we can bring the most value.

23:01If do we see much larger deals? Of course. But then, you know, Jason, you and I spoke about this in Doha. It was just trickier for us. you know again i'm i'm one source of capital for me to go buy something that's two three hundred million dollars i better not miss right and you you better be love that deal i think that we pass on a lot of deals that become very successful when we knew they were great deals we just weren't structurally set up for that and that's what i think the next wave is uh and we've created that reputation and brand that you know if we did have capital behind us like no one does better due due diligence in the sport of golf than us we might as well be like a mckenzie almost or a group like that and just be hired to go do the due diligence before you go buy one of the big we'll know the ceo we'll know every employee we'll know the pros and cons of it um and unfortunately they're not all great in golf so you have to be particular they might look great it goes to other businesses too but it's they they making money is tough right like and i've noticed that lots of revenue, I see the apparel lines.

24:05I never understand it because that trades off, it has to trade off from multiple revenue. I never, I never could get that in my head where I'm like, okay, so you sell a hundred million, but you make no money. I don't even know how that's possible, but let's talk about it. And then you're worth 300 million. I'm like, okay. So I don't live in that world. I just want to see a proven it. And that normally comes with good operating teams because they've gotten it to a place of cash flowing. We don't have too many revenue based business we have one that lives on the line of like we have a company called fairwayjockey.com which is just this website and we're on pace to sell 20 million dollars this year and like custom golf clubs online where you can go on and build any set of golf clubs with any shaft any specs and we're the only website in the world that offers this which is another weird thing to say that we do not have one competitor in the entire space i don't think anyone would be crazy enough to have the build shop and the things that we have already in place.

25:00But when we first bought it, we bought it to kind of shelve it because it was a competitor and it could hurt one of our other operating businesses. Then we kind of let it loose. And this thing's going to do$20 million. I spend 10 grand a month on marketing. I don't even spend money on marketing. We also now are like, maybe we should just get to 40, 50. We're not looking at as, okay, it breaks even, it makes a few million bucks. Who cares? Like this thing's going so fast. And we've gone from nine to 20. in two years, right? And I'm like, all right, this can go to 40 to 50 fairly quickly. So why don't we let this one run a little bit and we'll spend extra cash on it and we won't look at the bottom line.

25:38Then you could pull that back at a certain volume at$50 million, start stripping out those costs. Next thing you know, you can make it very successful. But that's probably the only time we live in that world. Howard would be all over me on that one, but he'd rather be small and make money. I get it. That's the goal here. is like make these businesses profitable and run them like real businesses. Because a lot of golf companies are more of a friends and family, like cool deal. And, you know, they're not structurally run like companies. And I think that's what we've, we were like, how can we help these people bring that structure to them?