Callaway 2002 Annual Report Download - page 33

30 CALLAWAY GOLF COMPANY
adversely affect the sales of the Company’s products or the
Company’s brand. For example, both the USGA and the R&A
are considering rules which would limit clubhead volume. If any
such volume limitation rules were adopted and caused one or
more of the Company’s current products to be non-conforming,
the Company’s sales of such products could be adversely
affected. Furthermore, such clubhead volume limitations would
restrict the Company’s ability to develop new golf club products.
Golf Professional Endorsements
The Company establishes relationships with professional
golfers in order to evaluate and promote Callaway Golf and
Odyssey branded products. The Company has entered into
endorsement arrangements with members of the various
professional tours, including the Champions Tour, the PGA
Tour, the LPGA Tour, the PGA European Tour, the Japan Golf
Tour and the Nationwide Tour. While most professional golfers
fulfill their contractual obligations, some have been known to
stop using a sponsor’s products despite contractual commitments.
If certain of the Company’s professional endorsers were to stop
using the Company’s products contrary to their endorsement
agreements, the Company’s business could be adversely affected
in a material way by the negative publicity.
Golf Clubs. In the past, the Company has experienced an
exceptional level of club usage on the world’s major professional
tours, and the Company has heavily advertised that fact. Many
professional golfers throughout the world use the Company’s
golf clubs even though they are not contractually bound to do so
and do not grant any endorsement to the Company. The
Company from time to time implements programs that create
cash incentives that financially reward such usage. Many other
companies, however, also aggressively seek the patronage of
these professionals and offer many inducements, including
significant cash rewards and specially designed products. The
inducements offered by other companies could result in a
decrease in usage of the Company’s clubs by professional
golfers. The Company believes that professional usage
contributes to retail sales, and it is therefore possible that a
decline in the level of professional usage of the Company’s
products could have a material adverse effect on the Company’s
sales and business.
Golf Balls. Many golf ball manufacturers, including the leading
U.S. manufacturer of premium golf balls, have focused a great
deal of their marketing efforts on promoting the fact that tour
professionals use their balls. Some of these golf ball competitors
spend large amounts of money to secure professional endorse-
ments and/or usage, and the market leader has obtained a very
high degree of tour penetration. While all of the Company’s staff
professionals, as well as other professionals who are not on the
Company’s staff, have decided to use the Company’s golf balls in
play, there is no assurance they will continue to do so.
Furthermore, there are many other professionals who are already
under contract with other golf ball manufacturers or who, for
other reasons, may not choose to play the Company’s golf ball
products. The Company does not plan to match the endorsement
spending levels of the leading manufacturer, and will instead rely
more heavily upon the performance of the Company’s golf ball
products and other factors to attract professionals to the product.
There is some evidence to suggest that there is a correlation
between use by professional golfers and retail sales. The
Company therefore believes that the results of the Company’s
golf ball business could be significantly affected by its success or
lack of success in securing acceptance on the professional tours.
Intellectual Property and Proprietary Rights
The golf club industry, in general, has been characterized by
widespread imitation of popular club designs. The Company
has an active program of enforcing its proprietary rights against
companies and individuals who market or manufacture coun-
terfeits and “knock off” products, and asserts its rights against
infringers of its copyrights, patents, trademarks, and trade
dress. However, there is no assurance that these efforts will
reduce the level of acceptance obtained by these infringers.
Additionally, there can be no assurance that other golf club
manufacturers will not be able to produce successful golf clubs
which imitate the Company’s designs without infringing any of
the Company’s copyrights, patents, trademarks, or trade dress.
An increasing number of the Company’s competitors have,
like the Company itself, sought to obtain patent, trademark,
copyright or other protection of their proprietary rights and
designs for golf clubs and golf balls. As the Company develops
new products, it attempts to avoid infringing the valid patents
and other intellectual property rights of others. Before