Callaway USGA Still Clashing Over ERC II

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USGA, CALLAWAY BATTLE LOOMS: In the space of a week, Callaway Golf stock has dropped nearly 28 percent of its value, starting a steep slide from $21.98 on June 2 to $15.91 on June 12. The reason? Ely Callaways retirement as president and CEO May 15 didnt help (he is still chairman of the board). But Callaway officials say it has more to do with a sharpening conflict with the U.S. Golf Association.
 
Callaway accuses the USGA of doing whatever it can to dampen U.S. sales of the ERC II driver, which tested with higher spring-like effect than the Rules of Golf (as promulgated by the USGA) allow. The club is golf-legal everywhere but the United States, Mexico and Canada. Callaway says that overseas sales of the ERC II are 32 percent ahead of forecast.
 
But in the same breath, Callaway complains that of its recent readjustment in earnings expectations for the second quarter ' the company now expects sales of $250 million, not the $290 originally predicted ' fully half is from lost domestic sales of the ERC II. The reason, Callaway says, is USGA pressure on pro shops to refrain from stocking the club.
 
This is an ongoing, active campaign the USGA has engaged in to prevent the sale of the ERC II driver in the United States, said Larry Dorman, Callaway spokesman.
 
Callaway isnt naming clubs that have allegedly bowed to USGA pressure; Dorman says its unlikely the clubs would speak up because they might then fall off the list of possible sites for lucrative USGA championships or qualifiers.
 
Its simply not true, said USGA executive director David Fay from Southern Hills Country Club, site of this weeks U.S. Open. We test clubs for conformity and thats the extent of it. We dont single out one club that exceeds our limit on COR [coefficient of restitution] over any other.
 
There are 38 clubs on the current USGA nonconforming list. Fay finds it unlikely that communications between members of the USGAs Ball and Implement Committee and club officials could have been misconstrued as admonitions to avoid the Callaway club.
 
I think we have been very clear with all our people to deal with nonconforming drivers in a generic way, Fay said.
 
Nonetheless, Callaway feels singled out for many reasons, Dorman said, not the least of which is Callaways inability to air ads for the ERC II during U.S. Open telecasts. The USGA has a contractual arrangement with NBC and ESPN to not air advertisements for nonconforming equipment of any kind during the Open; Fay says this has been a part of Open TV deals for more than a decade. In Callaways view, the prohibition effectively shuts down advertising of just Callaway products.