2004: Newsmakers - Callaway to make Nike practice balls

In a step toward maximizing its Top-Flite acquisition, Callaway Golf is manufacturing range and practice balls for rival Nike Golf at its underutilized plants in Chicopee, Mass., Golfweek has learned.

But the deal, struck between the two competitors last month, is more noteworthy for its potential evolution – perhaps, a blossoming Callaway-Nike relationship that yields more significant collaborations.

One possibility: Callaway may generate more revenue and help Nike make premium-priced ball products by licensing technology from its sizable Top-Flite patent portfolio.

Though Nike has bolstered its own R&D capabilities by hiring respected engineers such as Rock Ishii, access to ball design and construction remains an issue because such intellectual property is protected by patents controlled by a handful of key players: Most notably Top-Flite, Acushnet (Titleist and Pinnacle), and Japanese powers Bridgestone (Precept) and Sumitomo Rubber Industries (Srixon).

Nike Golf president Bob Wood, however, would not speculate about future deals and insisted its agreement with Callaway was “simply business as usual.” Since its entry into the ball category, Nike Golf has outsourced all production to various third parties, including Bridgestone and Wilson.

According to a statement released by Nike Golf, the Beaverton, Ore.-based company entered a supplier agreement that calls for Nike Golf “to supply Callaway Golf with specifications for the production of its range and practice golf balls at the Top-Flite golf ball manufacturing facility in Chicopee, Mass. Nike Golf will continue to work with multiple and undisclosed manufacturers for the production of its Power Distance, Mojo, TA2 and Nike One golf balls.”

Nike officials say they are seeking to increase range ball business, about 3 percent of total ball sales, and selected Callaway, in part, because its U.S.-based production reduces distribution time and costs.

For Callaway, the deal yields immediate benefits, creating a new revenue stream and increasing efficiencies at its Chicopee facilities, which have been operating under capacity because of Top-Flite’s sales decline.

Callaway officials declined to comment about the partnership, but Casey Alexander, an analyst who covers the company and the industry for Gilford Securities in New York, says, “This is a very important business initiative for Callaway.

“The volume increase in the Chicopee plants gets Top-Flite closer to break-even,” he says, adding that the Nike agreement helps Callaway “validate its deal for Top-Flite” and “has made something out of Top-Flite that previous management never did.

“And finally, people will begin connecting the dots here. If Nike can have Callaway outsource balls for it, could other relationships between the two companies be far behind?”

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