2004: IPO, TV deal enhance Natural resources

Natural Golf has made some noise over the years for its unorthodox teaching technique, but as a business, it’s been a dud, never turning a profit in its 14-year history.

But Andrew Wyant, the company’s chief executive, expects that streak will end soon, thanks to an initial public offering in December that put $12.5 million in the coffers.

The funds, he says, finally will give the company a chance to market its varied products, including instruction videos, golf clubs and golf schools – many of which have gone unnoticed thus far.

Coupled with a recent co-branding deal with Callaway Golf and an upcoming reality show on The Golf Channel featuring the Natural Golf

system, the company should double its annual sales of $10 million in fairly short order, Wyant says.

“The money gives us the capital to do a lot from a sales and marketing standpoint,” he explains. “The show will help us reach even more potential customers, and the affiliation with Callaway gives us additional credibility.”

Though the company has its fair share of supporters, Wyant’s optimism hardly is embraced by all. Skeptics are quick to underscore that Natural Golf’s teaching method is used by 200,000 golfers – a fraction of the 25 million people who play the game at least once annually.

“Remember, Natural Golf has something of an uphill battle because it goes against conventional wisdom and what most respected pros teach,” says Michael Breed, head professional at Sunningdale Country Club in Scarsdale, N.Y., and a nationally recognized instructor.

“The theory has some legitimacy, especially when it comes to hitting the ball straight,” he says. “But it does not lead to as much potential distance, which is important because golf has become very much a power game, and so many people I teach are looking for added distance.”

Natural Golf is based on a system espoused by Canadian Hall of Fame golfer Moe Norman. Players grip the club in the palms of their hands as opposed to the fingers, use a wider stance to

minimize hip movement and extend their arms to create a single plane. In theory, it requires

significantly less body rotation than a conventional swing, which makes it less sensitive to timing and

coordination. Its advocates include former Masters and British Open champion Sandy Lyle, and current PGA Tour player Craig Bowden.

The company, with headquarters in Mt. Prospect, Ill., is made up of three primary components: instruction videos, golf schools and golf clubs. Its equipment – which is specifically designed for the Natural Golf system – features oversized,

nontapered grips, slightly heavier heads and more upright lies, and accounts for roughly 50 percent of revenues. Remaining sales are split evenly between the videos and instructional programs, which are offered at 200 U.S. locations.

While it has struggled to get in the black, Natural Golf has managed to grow sales. From 1997 to 2001, for example, revenues increased sharply from $1 million to $16 million.

“But we did not have adequate amounts of cash to fund the business after 9/11, and our revenues fell back to $10 million,” Wyant says, adding that the company posted an operating loss of $2.5 million in 2003.

The money raised from the IPO, which was the most significant golf offering since Adams Golf went public in July 1998, is expected to address the company’s problems immediately.

“For one thing, it will allow us to retire $3.7 million worth of debt created by past losses,” Wyant says. “And for another, we can devote a significant amount of resources to marketing and sales. That includes making a new infomercial and enhancing the presence of our golf schools.”

The company also is counting on a bump from The Golf Channel show, “The Natural Golf Makeover Challenge,” which will debut in late June and run for eight weeks. The program’s premise is to have golfers undergo a makeover of their games by a team of Natural Golf experts.

And then there is the deal with Callaway Golf, which has agreed to become the exclusive supplier of golf clubs for Natural Golf.

“We started this year, and by the end of 2004 we will be making all equipment for that company,” says Callaway CEO Ron Drapeau. “We are going to use our clubheads and shafts, and their grips.”

The rationale for the alliance is simple. Natural Golf receives a welcome boost of credibility from one of the game’s top equipment makers, and it can focus time and energy on its teaching business instead of club development. As for Callaway, it gains an opportunity to generate more equipment sales and expand its consumer base. The deal, Drapeau says, will make Natural Golf one of Callaway’s top 100 customers worldwide.

But business benefits weren’t the only reason why Callaway struck a deal with Natural Golf. Another contributing factor: Pat Drapeau, the wife of Callaway’s chief executive, is a Natural Golfer. She tried the system after back pain forced her to give up golf temporarily and became such a fan that friends soon began calling her “Moe Drapeau.”

Gilford Securities research analyst Casey Alexander seems just as bullish on the company and recently issued a “Buy” recommendation for the stock, which trades on the American Stock Exchange under the symbol NAX.

“I am struck by how zealously devoted Natural Golfers are to the swing system,” he says. “What the company has really needed is to be adequately funded because it has never had a fully integrated sales and marketing program.”

But Alexander is quick to add that with capital now in hand, “it is on Natural Golf to make it work.”













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