Idea Brunch with Jonathan Boyar of Boyar Value
Welcome to Sunday’s Idea Brunch, your interview series with great off-the-beaten-path investors. We are very excited to interview Jonathan Boyar!
Jonathan is the Managing Director of Boyar Value Group, which consists of Boyar Asset Management, a value-focused registered investment advisor, and Boyar Research, which has been publishing detailed, independent equity research on a subscription basis for institutional clients since 1975, and recently started publishing on Substack too.
Jon, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background?
I’ve been around stock market investing for as long as I can remember. My dad, Mark, has been both a portfolio manager and a publisher of independent stock market research since the 1970s, so growing up, I was constantly hearing about the companies he was analyzing or investing in. I learned a lot simply through osmosis. But he also taught me the technical side of investing, which gave me a solid foundation early on.
After college, I started working at what’s now GAMCO Investors, the firm founded by Mario Gabelli. It was an incredible place to learn and really cemented my love for value investing. The idea of trying to buy a dollar for fifty cents has always just made sense to me. I’d interned at a well-known growth investing firm during college, and while they had a fantastic track record, that style of investing just didn’t fit my personality or resonate as much with me.
I did take a bit of a detour after GAMCO and went to law school. I loved studying law, but I quickly realized practicing it wasn’t for me. After a few years as a litigator, I joined my dad’s firm in 2007—just in time to get a front-row seat for the financial crisis. It was a wild time to start, but in hindsight, it was a great learning experience. I saw just how cheap stocks can get during a crisis and how quickly they can recover when the tide turns.
What does Boyar Value Group do?
At Boyar Value Group, we’ve got two sides to the business that work hand in hand. On one side, we focus on equity research, which has been what we do since the very beginning. We publish deep-dive, independent research for some of the smartest investors out there—hedge funds, mutual funds, sovereign wealth funds, and family offices.
What makes our research stand out is that we approach public companies the way a private equity buyer would—valuing them as if we were buying the entire business. If a stock is trading at a big discount to what we think an informed buyer would pay, it starts to get our attention. But we don’t stop there; to avoid falling into value traps, we also need to see a clear catalyst that can unlock value in a reasonable timeframe. For us, that’s usually 2-3 years. Being more patient than most investors gives us what I think is a real edge.
Where do you look for opportunities?
We mostly focus on U.S. stocks, though we’ll occasionally look at international names, like Nintendo, which we profiled earlier this year. We don’t box ourselves into any one sector or market cap, though we generally steer clear of energy and most technology-oriented companies. The companies we cover tend to fall into two buckets: those that are heavily followed by Wall Street where we have a contrarian view, and those with little to no sell-side coverage.
It’s worth pointing out that we’re not your stereotypical value investors who just look for statistically cheap stocks. For example, we’ve invested in companies like Uber because we believe in the value of the network they’ve built and how that is not reflected in their share price. Or Madison Square Garden Sports (MSGS), which might not look cheap based on earnings, but trades well below what we think an acquirer would pay for its crown jewel assets—the New York Knicks and the Rangers.
The other side of our business is investment management. We manage money for institutions and high-net-worth individuals, utilizing our inhouse research capabilities (almost all of the companies we buy for clients have at one time or another been profiled in our research service). Our portfolios are concentrated, and we take a very long-term, patient approach, with an average turnover of around 10%. We’re also extremely tax-sensitive because, at the end of the day, it’s not just about what you make—it’s about what you keep.
It’s unique that you both manage money and produce investment research. What are the keys to success in the institutional equity research business? And have you found any synergy between your two divisions?
Most firms that grow large enough on the money management side tend to shut down their research divisions. From a purely economic standpoint, managing money is a better business—it’s more scalable and has stronger economics. That’s not to say the research side isn’t profitable, but it doesn’t have the same growth potential.
The reason we keep our research arm is simple: we see it as a huge competitive advantage for our money management business. Publishing independent research forces us to stay sharp and continuously generate new ideas for some of the most sophisticated investors in the world. This helps us avoid one of the common traps money managers fall into which is recycling the same investment ideas over and over.
Another major benefit is the feedback we get from our research clients, many of whom I consider to be among the best investors in the world. They challenge our theses, which forces us to defend—or, in some cases, rethink—our ideas and assumptions. Sometimes, they even pitch us their own investments.
While we’re aware that they’re “talking their book,” occasionally these conversations lead to compelling opportunities that we eventually publish. Of course, we only feature a company if it meets our strict criteria.
This combination of critical feedback and a steady stream of new ideas has been invaluable to both sides of our business and this is why we will continue to publish research for the foreseeable future.
In October 2023 you went on the Yet Another Value Podcast to pitch Topgolf Callaway Brands (NYSE: MODG — $1.46 billion), which is down ~75% from its June 2021 highs and down ~20% since your interview. What went wrong at Topgolf Callaway and is it a compelling opportunity today?
In 2020, when Topgolf was grappling with pandemic-related venue closures, Callaway stepped in and acquired the business—of which it already owned about 14%—at a steep discount. The purchase price reflected about 50% off the valuation Topgolf was expected to achieve in its pre-pandemic IPO plans. The timing seemed opportunistic, as the golf industry was experiencing a surge in participation driven by the pandemic. Before that, U.S. golf participation had been in decline since the housing crisis.
Topgolf’s unique concept—a mix of driving range, nightclub, and bowling alley—was perfectly positioned to capitalize on the pent-up demand that followed the reopening phase. At the same time, Callaway’s golf equipment business benefited from the sport’s socially distanced appeal.
On-course golf remains a pandemic success story, with new players attributing their introduction to the game to off-course experiences like Topgolf. About 10% of new on-course players credit Topgolf for their start. However, the off-course segment, including Topgolf, has struggled with what you could call a reopening hangover. Strong same-venue sales (SVS) growth during 2022—up 7.4% compared to 2019—has given way to headwinds. Corporate customers, who represent about 20% of Topgolf’s revenue, began pulling back in early 2023, and this slowdown has since spread to consumers. Inflation and higher interest rates have pinched discretionary spending, directly impacting a business like Topgolf.
Interestingly, Callaway’s traditional golf equipment business has been far more resilient, benefiting from a wealthier and less price-sensitive customer base. In contrast, Topgolf’s SVS for 2023 ended up essentially flat, rising just 1%—well below initial expectations. This trend continued into 2024, with SVS falling 7% in Q1, 8% in Q2, and 11% in Q3. Management revised their full-year guidance during the Q2 earnings call, anticipating a high-single to low-double-digit percentage decline for the year. While Q3 results aligned with this forecast, management hinted at potential stabilization, citing some improvements in the corporate business.
While Topgolf’s recent SVS trends are disappointing—and clearly we didn’t foresee such a sharp decline—we don’t see this as a sign of a structural problem. The concept has proven its staying power, with venues that have been open for over two decades continuing to grow revenue and profitability. For example, in the UK, where the Topgolf concept originated, average revenue per venue has increased fivefold since 2007, with profitability (measured by EBITDAR) growing at a 12.5% annualized rate over that period.
We believe the current weakness is cyclical and represents an opportunity for patient investors. At today’s share price of $8.31, the enterprise value of Topgolf is roughly $2.5 billion, the same amount Callaway paid for the business in 2021—despite the number of venues increasing from 58 to about 100.
Valuing these venues at $41 million each (Callaway acquired Topgolf in 2021 for what amounted to ~$41 million per venue). implies a total value of $4.1 billion for Topgolf alone. Essentially, investors can now acquire the Topgolf business at a steep discount—more than 40% off—and get Callaway’s golf equipment and lifestyle businesses, which generate $2.5 billion in revenue and $268 million in EBITDA annually, for free.
Topgolf also has significant growth potential. Management estimates that the U.S. market can support 250 venues, while international expansion is just beginning, with room for another 250 venues globally.
Critically, there’s a clear catalyst to unlock value. Recognizing the disconnect between Topgolf’s valuation and its potential, Callaway’s management announced in September 2024 plans to spin off at least 80.1% of Topgolf. While a spinoff is the most likely path, they’re keeping other options, like a sale, on the table. At the same time, they’re working to revitalize the business, which should help stabilize and eventually improve SVS trends.
For long-term investors, the combination of a discounted valuation, clear growth runway, and an actionable catalyst makes this an intriguing opportunity.