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Golf remains its own biggest enemy. The game is time consuming and expensive--and still excruciatingly difficult. A single driver can cost as much as $600. In the past two years, competition has become so stiff and club improvements so minimal and costly that only the most deep-pocketed companies have been able to keep turning out cutting-edge products. Callaway and TaylorMade each spend as much as $35 million on research and development yearly. "I don't know how successful you can be without investing heavily in your own technology," says Mark King, president of TaylorMade, whose 300-series drivers are ranked No. 1 on the PGA tour.
Last year the U.S. Golf Association threw a new hazard at the industry. When Callaway introduced a revolutionary, ultra-powerful driver called the ERC II, the USGA decreed that the club had a rule-violating "springlike effect" on the ball. The attendant publicity has put a devastating backspin on sales of the ERC II, but it also raises the disturbing prospect of a curb on further technological enhancements to clubs.
Many disagree with the USGA's stance, from Wall Street analysts to Scotland's Royal and Ancient Golf Club of St. Andrews, the governing body for the sport throughout the world, which okayed the club. Says A.G. Edwards analyst Tim Conder to the USGA: "Hey, guys, wake up and focus on growing the game."
If there's any progress on that front, it has come thanks to Tiger Woods and his sponsor, Nike. The Swoosh got into the golf-ball business on the cheap three years ago and, remarkably, has already pulled down 5% of the market. Part of Nike's secret is a simple technological shift to a solid-core rubber ball, which travels considerably farther than the conventional ball, made of wound rubber bands. Other companies have moved to similar balls. Titleist's Pro V1 solid-core balls are now so popular that they are being rationed to retailers.
Still, a boost in the ball market will not sustain a rebound in the industry. Hayley Kissel, an analyst at Merrill Lynch, points out that companies such as Callaway and Nike will have to keep expanding into other products. That's why the industry is eagerly awaiting Nike's new line of clubs, endorsed by pro David Duval. Kissel and others question Nike's ability to deliver game-enhancing products. But Nike Golf marketing director Mike Kelly insists the business is not only about product but about expanding the game. "Ely Callaway revolutionized the business in terms of market and product appeal in the 1990s," says Kelly. "Now we are revolutionizing the game by giving it the credibility it deserves." The question is whether that will translate into real money.
--With reporting by Valerie Marchant/New York