The Real Numbers: "JT and Rory vs. the USGA"

Justin Thomas mentioned the (billions!) R&D outlay by manufacturers as reason enough to not do anything. He walked that back to millions but ultimately landed at the same spot mentioning “hard work” of manufacturers as cause for rulemakers to stand down.

So, profit over the good of the game. He’s hardly the first and as Titleist’s top player naturally taking the company line.

Rory McIlroy was widely lauded for his comments blasting the USGA’s waste of money studying the distance issue. This, even as he reiterated his support for some kind of skill-protecting bifurcation. His latter point did not jibe with Taylormade’s position on the possibility of tighter regulation.

The Fried Egg’s Will Knights has looked at the claims and it turns out the USGA has spent about $1 million on their portion of the distance study while the manufacturers have spent far more in annual R&D with positive tax implications for doing so. As always I urge you to read the full piece as it’s loaded with fascinating information.

As for Thomas’s claim of R&D spending, Knight found it may be a smaller number than expected and a nice tax credit awaits if desired.

From 2017 to 2019, Acushnet, Titleist’s holding company, spent between $47 and $52 million on R&D. That amounted to about 3% of the company’s net sales. Over the same period, Callaway spent between $36 and $51 million, between 3 and 4% of its net sales. These expenses cannot be attributed solely to golf ball and club development, as both companies manufacture clothing, shoes, and other kinds of products. However, for both Acushnet and Callaway, golf equipment is a major priority, so it’s safe to assume that their R&D spends would be largely allocated to balls and clubs. (Callaway does note that a significant portion of its R&D increase between 2018 and 2019 was due to its acquisition of Jack Wolfskin, an outdoor apparel company.)

The key is this: U.S. companies can take a tax credit for a portion of their R&D spending from their taxable income. This is a complex calculation and we do not have full details on how golf OEMs perform it, but the documents reveal that Callaway has carried forward $18.8 million in federal R&D tax credits, which will expire in the 2030s. These tax credits account for about 3.5% of Callaway’s 2019 taxable income and 4.4% of its 2018 taxable income.

Then there is McIlroy’s claim of wasteful spending. The USGA’s Janeen Driscoll responded to that notion when queried by Knights.

“The USGA invested $1 million total in Distance Insights from 2017 to 2020—the majority of which was dedicated to third-party research,” Driscoll told The Fried Egg in an email. “A lot of this research was dedicated to better understanding and quantifying the recreational game, as we had more than enough data from professional tours and golf at the elite competitive level.”

Driscoll went on to compare that multi-year $1 million investment to the USGA’s spending on other initiatives. In 2020 alone, the organization dedicated $1.3 million to junior programs, $1.9 million to turfgrass research grants, more than $1 million to the PJ Boatwright Internship program, and another $3 million to golf history research and preservation. The USGA also typically sets aside about $10 million per year to conduct amateur championships around the country.

There is more, including the USGA’s Green Section work and other programs that give back to the game.

These two stars are very good at golf and that’s their expertise. Most golf publications will never do anything but praise the players no matter how silly their claims, all in hopes of scratching up a few ad dollars from the manufacturers. But this is a reminder that the topic is multi-layered and such remarks deserve more investigation as the debate progresses.