Stock slides 35%: TaylorMade lands Callaway in rough with hot new driver

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TaylorMade Golf Co.'s new driver is driving rival Callaway Golf Co. right off the course.

Several years ago, Callaway and its revolutionary Big Bertha driver pushed TaylorMade to the brink of bankruptcy, salvaged only when Adidas-Salomon acquired TaylorMade. But now it's TaylorMade driving Callaway into the financial equivalent of bogey golf. After four consecutive losing quarters, including a second-quarter net drop of 60%, Callaway President-CEO Ron Drapeau was forced to resign Aug. 2. The company's stock is down almost 35% since Jan. 1. Callaway did not return phone calls seeking comment.

"There's no love lost between these two entities," said Terry McAndrew, publisher of the influential Web Street Golf Report newsletter.

"I think that's fair to say," said TaylorMade spokesman John Steinbach, likening it to the cola wars. "The primary reason, just like Coke and Pepsi, is that we're both going after the same consumer."

In July, Callaway changed ad agencies, moving its $38 million account from Interpublic Group of Cos.' Dailey & Associates to WPP Group's Y&R Advertising, Irvine, Calif. KSL Media, New York, was given the $35 million media spending account, which was also at Dailey. NYCA, Encinatas, Calif., handles TaylorMade.

`subliminal message'

Mr. McAndrew said the pressure is on. "With Ron Drapeau resigning within days of Callaway changing agencies, I think it sends a subliminal message to Y&R that there's no honeymoon," he said.

In past interviews, Mr. Drapeau said part of the problem was the price wars that TaylorMade started by slashing the cost of its metal-wood drivers. But analysts and observers say Callaway made two critical errors in judgment.

First, it concentrated too much on its acquisition of Top-Flite golf balls-ultimately a financial liability -and not enough on the high-margin metal woods, where marketers make their money.

rule violation

Second, when Callaway did produce a successor to Big Bertha with the ERC II, the club violated the rules of the U.S. Golf Association. Pros couldn't use the club on the PGA Tour, and when pros endorse clubs it usually follows that amateurs go out and purchase those clubs. Callaway had no backup driver in place.

In the meantime, TaylorMade introduced a succession of drivers that culminated this May with the r7 Quad, a unique club that retails for $499, yet has been flying off store shelves.

The upshot? According to the Sporting Goods Manufacturers Association, TaylorMade had a 26.1% dollar share of the metal-woods market in the latest figures released in June of this year, while Callaway's market share fell to 19.5%.

Callaway has since introduced its version of the r7, the ERC Fusion, and has had some success with it, in endorsements and Tour victories.

Now Nike's golf division has introduced a driver, the Ignite. "They're not really as large a rival as some people may perceive," Mr. McAndrew said. "But they have deep resources ... so they're clearly someone that [Callaway and TaylorMade] are paying attention to."

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